<PAGE>
As filed with the Securities and Exchange Commission on September 22, 1999
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
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 10019
(212) 894-8440
(Name, Address and Telephone Number
of Agent for Service of Process)
Copies of communications to:
<TABLE>
<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 ............... 2,451,614 US $6.00 US $14,709,684 US $4,089.29
=======================================================================================================
</TABLE>
(1) Includes up to 319,776 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.
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 SEPTEMBER 22, 1999
E-Cruiter.com Inc.
2,131,838 Common Shares
US $6.00 per Share
E-Cruiter.com Inc. is offering 2,000,000 of its common shares, and the
selling shareholders are offering 131,838 common shares. E-Cruiter will not
receive any proceeds from the sale of shares by the selling shareholders. This
is our initial public offering and there currently is no public market for our
common shares. The offering price may not reflect the market price of our
shares after the offering. We anticipate that our common shares will be listed
on the Nasdaq SmallCap Market under the trading symbol "ECRU."
---------------------
Investing in the common shares involves risks.
See "Risk Factors" beginning on page 8.
---------------------
<TABLE>
<CAPTION>
=================================================================================================
Public Underwriting Proceeds Proceeds
Offering Discounts and To To
Price Commissions Company Selling Shareholders
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ......... US $6.00 US $.58 US $5.42 US $5.42
Total ............. US $12,791,028 US $1,236,466 US $10,840,000 US $714,562
=================================================================================================
</TABLE>
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We have granted the underwriter a 45-day option to purchase up to an
additional 319,776 common shares to cover over-allotments. The underwriter is
offering the common shares on a firm commitment basis. Whale Securities Co.,
L.P. expects to deliver the common shares to purchasers on , 1999.
---------------------
Whale Securities Co., L.P.
, 1999
<PAGE>
[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 September 8, 1999 was $1.4870
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.
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.
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 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.
3
<PAGE>
Our Clients
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 Clearnet Communications Inc. o Loblaws Supermarkets Limited
o Compugen Systems Ltd. o Performance Systematix Inc.
o Corel Corporation o Siemens Information and
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 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 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.
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.
4
<PAGE>
The Offering
Common shares offered by
E-Cruiter................. 2,000,000 shares
Common shares offered by
selling shareholders...... 131,838 shares
Common shares to be
outstanding after
this offering............. 7,062,449 shares
The number of common shares outstanding after this
offering includes 1,198,462 common shares to be
issued immediately before the closing of this
offering upon conversion of outstanding convertible
promissory notes, of which 131,838 common shares
are being offered by the selling shareholders,
assuming this offering closes on October 31, 1999.
The number of common shares outstanding after this
offering does not include:
o 213,184 shares reserved for issuance upon
exercise of the underwriter's warrants;
o 516,641 shares reserved for issuance upon
exercise of options granted under our option
plan;
o 250,000 shares reserved for issuance upon the
exercise of options available for future grant
under our 1999 option plan;
o 319,776 shares reserved for issuance in this
offering to cover over-allotments, if any by the
underwriter; and
o 21,693 shares reserved for issuance upon exercise
of non-plan options.
Use of proceeds.......... We intend to use the net proceeds of this offering
for marketing and advertising, technology
development and acquisition, sales, repayment of
indebtedness, client support and working capital and
general corporate purposes.
Risk factors............. An investment in the common shares is speculative
and involves a high degree of risk. You should
purchase the shares only if you can afford a
complete loss of your investment. You should
consider carefully the risks listed in the "Risk
Factors" section of this prospectus before making an
investment in our shares.
Proposed Nasdaq SmallCap
Market Symbol........... ECRU
5
<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 - Canadian GAAP:
<TABLE>
<CAPTION>
(Cdn $)
Year Ended May 31, (US $)
---------------------------------------------------- Year Ended
1997 1998 1999 May 31, 1999
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
Balance Sheet Data -- Canadian GAAP:
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 into common shares; (2) the issuance of 6,508 common shares
in September 1999 to satisfy a May 31, 1999 liability of $57,498 (US $39,048);
and (3) our borrowing of $1,300,000 (US $882,852) under a loan which we
obtained in September 1999 from Paul Champagne, a principal shareholder of
E-Cruiter.
The "as further adjusted" column gives effect to the receipt of estimated
net proceeds from this offering of $14,527,685 (US $9,866,000) and to repayment
of the $1,300,000 (US $882,852) loan.
<TABLE>
<CAPTION>
(Cdn $) (US $)
As of May 31, 1999 As of May 31, 1999
---------------------------------------------- -----------------------------------------------
As As Further As As Further
Actual Adjusted Adjusted Actual Adjusted Adjusted
---------------- ------------- ------------- ---------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital
(deficit) ............ $ (1,488,371) $ 731,190 $15,258,875 $ (1,010,778) $ 496,564 $10,362,564
Total assets ........... 2,176,210 3,476,210 16,703,895 1,477,902 2,360,754 11,343,902
Total liabilities ...... 3,416,514 2,496,953 1,196,953 2,320,213 1,695,723 812,871
Shareholders' equity
(deficit) ............ (1,240,304) 979,257 15,506,942 (842,311) 665,030 10,531,030
</TABLE>
6
<PAGE>
U.S. GAAP
Our net loss for our fiscal year ended May 31, 1999 under U.S. GAAP is
$4,864,735 (US $3,303,725), or $1.26 (US $.86) per share, as a result of
differences in accounting treatment for options granted and promissory notes
issued. Refer to note 14 to notes to consolidated financial statements.
Our current liabilities as of May 31, 1999 are $3,845,067 (US $2,611,251)
under U.S. GAAP as compared to $3,376,514 (US $2,293,048) under Canadian GAAP.
The differences between U.S. GAAP and 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.
7
<PAGE>
RISK FACTORS
The shares offered by this prospectus are speculative and involve a high
degree of risk. In addition to other information in this prospectus, you should
consider carefully the following risks before making an investment decision.
Risks Related to Our Financial Condition and Business Model
We have incurred losses since commencing business and expect to incur future
losses.
Since our inception, we have incurred losses which have been substantial
in relation to our operations. As of May 31, 1999, the end of our most recent
fiscal year, we had an accumulated deficit of $4,916,440 (US $3,338,839). We
expect our operating expenses to continue to increase significantly in
connection with our proposed expanded activities, and consequently, we expect
to continue to incur losses. We are not certain when we will become profitable,
if at all. 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 have generated relatively small amounts of revenue. If
revenue grows slower than we anticipate or if operating expenses exceed our
expectations, our business, results of operations and financial condition and
the value of your investment will be materially and adversely affected.
Additionally, 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 vest 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 three months ended November 30, 1999 for the
difference between the exercise price and the initial offering price per share.
We may not be able to grow our client base and revenue because of the number of
competitors and the variety of sources of competition we face.
Our future success will depend in large part on our ability to rapidly
grow and maintain our client base and revenue. This requires that we offer
services that are superior to the services being offered by our competitors and
that we price them competitively. We compete for a portion of employers'
recruiting budgets with many types of competitors, as employers typically
utilize a variety of sources for recruiting, including:
o traditional offline recruiting firms;
o traditional offline advertising, such as print media;
o resume processing companies;
o web-based recruitment companies;
o Internet job posting companies; and
o client-server-based software services.
In addition, many employers are developing or may develop their own software to
satisfy their recruitment needs.
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. If we
are unable to compete successfully for clients to rapidly grow our client base
and revenue, our business, operating results and financial condition could be
materially adversely affected.
8
<PAGE>
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 a good reputation and strong brand name, we
will need to invest heavily in our marketing and maintain high standards for
actual and perceived quality, usefulness, reliability, security and ease of use
of our services. If we fail to successfully promote and maintain our brand,
particularly after incurring significant expenses in promoting our brand, or
encounter legal obstacles which prevent our continued use of our brand name,
our business and the value of your investment could be materially adversely
affected. Moreover, even if we continue to provide good service to our clients,
factors outside of our control, including actions by organizations that are
mistaken for us and factors generally affecting our industry, could affect our
brand and the perceived quality of our services.
Our success will depend on our ability to enter into strategic relationships
with job posting and other online employment sources to offer an attractive
service to our clients and with a variety of third parties to expand the
distribution of our services.
If we are unable to enter into successful strategic relationships, our
business will suffer. We must maintain our existing relationships with job
posting boards and other online employment sources and enter into additional
similar relationships to continue to offer an attractive service. We also must
enter into arrangements with third parties, such as value-added service
providers, to expand the distribution of our services. Because many of these
third parties compete with each other, the existence of a relationship with any
particular third party may limit or preclude us from entering into a
relationship with that third party's competitors. In addition, some of the
third parties with which we seek to enter into relationships may view us 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 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
9
<PAGE>
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.
We may need to raise additional capital in the future to grow our business.
Our future capital requirements depend on a number of factors, including
our ability to grow our revenue and manage our business. We believe that our
cash on hand, our banking arrangements and the proceeds from this offering 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 additional financing is not available when
required or is not available on acceptable terms. If we are able to raise
additional funds and do so by issuing equity or convertible debt securities,
you may experience significant dilution of your ownership interest and holders
of these securities may have rights senior to those of the holders of our
common shares.
You should not rely on our quarterly operating results as an indication of our
future operating results because they are subject to significant fluctuations.
Fluctuations in our operating results could negatively impact our share price.
Our quarterly operating results may fluctuate significantly because of
several factors, many of which are beyond our control. Factors that may affect
our quarterly results include:
o the rate of growth of Internet usage and Internet-based recruitment
advertising;
o cancellation or non-renewal of existing or future key customer
contracts;
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.
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.
10
<PAGE>
Many of our current and targeted corporate clients have only limited
experience in using the Internet for recruiting purposes. They have not yet
adopted corporate policies to spend a significant amount of their recruitment
budgets on Internet-based recruitment or to commit to doing so over long
periods. The adoption of online recruiting requires an acceptance of a new way
of conducting business, exchanging information, applying for jobs and filling
job openings. As a result, our sales force will have to spend a significant
amount of time and resources retaining existing clients and educating potential
clients about our services and the Internet recruiting market, which will
require a substantial investment by us.
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.
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.
11
<PAGE>
Others could claim that we infringe upon their proprietary technologies.
Our products, services, content and brand names may be found to infringe
valid copyrights, trademarks or other intellectual property rights held by
third parties. In the event of a successful infringement claim against us and
our failure or inability to modify our technologies or services, develop
non-infringing technology or license the infringed or similar technology, we
may not be able to offer our services. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements, modify our technologies or services or prevent us from
using important technologies or services, any of which could damage our
business and financial condition.
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
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<PAGE>
network infrastructure. If we are unable to add additional software and
hardware to accommodate increased demand, we could experience unanticipated
system disruptions and slower response times. Any catastrophic failure at our
location facility could prevent us from serving our clients for a number of
days, or possibly weeks, and any failure of our Internet service provider may
adversely affect our network's performance. Our clients may become dissatisfied
by any system failure that interrupts our ability to provide our services to
them or results in slower response times. Our business interruption insurance
may not adequately compensate us for any losses that may occur due to any
failures in our system or interruptions in our services.
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.
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
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<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 $1.48 and you will have paid US $6.00 per share. As a result, you
will experience immediate and substantial dilution of US $4.52 per share, or
75.3%, between the net tangible book value per common share after this offering
and the initial public offering price per share. This dilution is due to the
fact that our earlier investors paid less than the initial public offering
price when they purchased their shares and because we have incurred losses
since our inception.
The significant number of outstanding options and warrants could depress the
market price of our common shares and could interfere with our ability to raise
capital.
Upon the closing of this offering, there will be outstanding options and
warrants to purchase an aggregate of 751,518 common shares, including 213,184
common shares issuable upon exercise of the underwriter's warrants, at exercise
prices ranging from US $1.56 to US $9.90 per share. To the extent that the
outstanding options and warrants are exercised, dilution to the percentage of
ownership of our shareholders will occur and any sales in the public market of
the common shares underlying those options and warrants may adversely affect
prevailing market prices for our common shares. Moreover, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of outstanding options and warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on terms more favorable to us than those provided in the
outstanding options and warrants.
After this offering, a small number of shareholders, including our officers and
directors, will have the ability to control shareholder votes.
Upon the closing of this offering, our executive officers, directors and
other principal shareholders will hold approximately 61.1% of our outstanding
shares. These shareholders, if acting together, would have the ability to elect
our directors and to determine corporate actions requiring shareholder
approval, irrespective of how other shareholders may vote. The interests of
these shareholders may differ from the interests of our other shareholders.
This consolidation of voting power could also have the effect of delaying,
deterring or preventing a change in our control that might be beneficial to
other shareholders.
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
14
<PAGE>
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 and the existence of registration
rights could depress the market for our common shares.
Sales of a substantial number of our common shares in the public market,
or the perception that these sales may occur, could adversely affect the market
price of our common shares. This could also impair our ability to raise
additional capital through the sale of our equity securities. After this
offering, we will have approximately 7,062,449 common shares outstanding or
approximately 7,382,225 shares if the underwriter exercises its over-allotment
option in full. The shares sold in this offering will be freely tradeable. Of
the remaining 4,930,611 shares, none are restricted securities as that term is
defined under Rule 144. However, approximately 3,938,171 shares are held by
officers, directors and other persons who may be deemed to be our affiliates.
Shares held by our affiliates will become eligible for sale in the public
market 90 days after the date of this prospectus and will be subject to the
limitations and other conditions of Rule 144 under the Securities Act.
We have granted registration rights with respect to 3,671,540 of the
shares, most of which are held by these affiliates. These rights become
exercisable 12 months after the date 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 discussed
in the "Description of Securities" and "Shares Eligible for Future Sale"
sections of this prospectus. We cannot predict the effect, if any, that sales
of these additional securities or the availability of these additional
securities for sale will have on the market prices prevailing from time to
time.
The market price of our common shares may be extremely volatile.
The market price of our common shares may be highly volatile as a result
of factors specific to us or applicable to our market and industry in general.
These factors include:
o variations in our annual or quarterly financial results or those of our
competitors;
o changes by financial research analysts in their recommendations or
estimates of our earnings;
o conditions in the economy in general or in the information technology
service sector in particular;
o announcements of technological innovations or new products or services
by us or our competitors, and
o unfavorable publicity or changes in applicable laws or regulations, or
their judicial or administrative interpretations affecting us or the
information technology service sectors.
In addition, the stock market has recently been subject to extreme price
and volume fluctuations. This volatility has significantly affected the market
prices of securities issued by many companies for reasons 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.
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 key person life insurance policies on the life of Mr. Stanton
in the amount of US $2,000,000, and the life of Mr. Rao in the amount of US
$1,000,000, these amounts may not be sufficient to offset the loss of their
services.
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<PAGE>
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.
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.
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<PAGE>
USE OF PROCEEDS
The net proceeds to E-Cruiter from the sale of the 2,000,000 common shares
being offered by E-Cruiter, after deducting underwriting discounts and other
expenses of this offering, are estimated to be US $9,866,000. We will receive
no proceeds from the sale of shares by selling shareholders.
We expect to use the net proceeds during the 12 months following the
closing of this offering as follows:
<TABLE>
<CAPTION>
Approximate
Approximate US Percentage of
Application of Net Proceeds Dollar amount Net Proceeds
- --------------------------- ----------------- --------------
<S> <C> <C>
Marketing and advertising .............................. US $3,000,000 30.4%
Technology development and acquisition ................. 2,300,000 23.3
Sales .................................................. 1,500,000 15.2
Repayment of indebtedness .............................. 890,000 9.0
Client support and network infrastructure .............. 700,000 7.1
Working capital and general corporate purposes ......... 1,476,000 15.0
-------------- -----
Total ................................................. US $9,866,000 100.0%
============== =====
</TABLE>
Marketing and advertising. We intend to increase the visibility and
awareness of E-Cruiter and our services through an integrated program of
marketing initiatives, including tradeshow participation, seminars, direct
mail, industry analyst meetings and media interviews. We also intend to develop
our web site to provide potential clients with information about E-Cruiter and
our services. In addition, we intend to increase significantly our advertising
efforts, primarily through radio, print and Internet advertising.
Technology development and acquisition. We intend to expand our software
development capability by adding new personnel to continue to enhance our
services. We also intend to enhance our technology through the acquisition of
technologies which enhance our services and companies with complementary
technologies and/or licensing of technologies which enhance our services. As of
the date of this prospectus, we have no plans, agreements, commitments,
understandings or arrangements with respect to any acquisitions.
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 channel sales in Canada and the United
States.
Repayment of indebtedness. We intend to repay the principal of, and
related interest on, a $1,300,000
(US $882,852) loan which we obtained from Paul Champagne, our largest
shareholder, in September 1999. This loan bears interest at the Canadian prime
lending rate plus 3% per year and is due on the earlier of March 2000 and the
closing of this offering. We used the proceeds of this loan for working capital
and general corporate purposes.
Client support and network infrastructure. In order to expand and improve
our client support and to provide around the clock services to our clients, we
intend to increase the number of client support and network operations
personnel and expand our network infrastructure. Investments in our
infrastructure include upgrades to our network operations center, network
servers and related software and computers.
Working capital and general corporate purposes. We may use a portion of
the proceeds allocated to working capital and general corporate purposes to pay
a portion of trade payables incurred from time to time and the salaries of our
officers, if cash flow from operations is insufficient for these purposes.
Over-allotment option. If the underwriter exercises its over-allotment
option in full, after deducting underwriting discounts and other expenses of
this offering, we will realize additional net proceeds of
US $1,675,626 all of which will be allocated to working capital and general
corporate purposes.
The foregoing description represents our best estimate of the allocation
of the net proceeds of this offering based upon the current status of our
business. We based this estimate on assumptions, which include: a continued
expansion of our client base and corresponding increases in revenue; completion
of our proposed new services release; and the introduction of our new services
without unanticipated delays or costs. If any of
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<PAGE>
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.
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<PAGE>
DILUTION
The difference between the initial public offering price per share and the
net tangible book value per share after this offering constitutes the dilution
to investors in this offering. Net tangible book value per share is determined
by dividing total tangible assets less total liabilities by the number of
outstanding common shares.
On May 31, 1999, we had a net tangible book value of $877,557 (US
$595,964) or $.17 (US $.12) per share, assuming conversion of outstanding
convertible promissory notes into 1,198,462 common shares and the issuance of
6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of
$57,498 (US $39,048). After giving effect to the sale of the 2,000,000 common
shares being offered by E-Cruiter and after deducting estimated underwriting
discounts and expenses of this offering, our adjusted net tangible book value
on May 31, 1999 would have been $15,405,242 (US $10,461,964) or $2.18 (US
$1.48) per share, representing an immediate increase in our net tangible book
value of US $1.36 per share to the existing shareholders and an immediate
dilution of US $4.52 per share or, 75.3%, to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price ........................... US $6.00
Net tangible book value before offering .............. US $ .12
Increase attributable to new investors ............... US $1.36
--------
Adjusted net tangible book value after offering ......... US $1.48
--------
Dilution to new investors ............................... US $4.52
========
</TABLE>
As of the date of this offering, the following table illustrates a
comparison of the number of common shares we issued, the percentage ownership
of those shares, the total consideration paid, the percentage of total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
----------------------- ----------------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ......... 5,062,449 71.7% US $ 4,319,756 26.5% US $ .85
New investors ................. 2,000,000 28.3 12,000,000 73.5 US $6.00
--------- ----- -------------- -----
7,062,449 100.0% US $16,319,756 100.0%
========= ===== ============== =====
</TABLE>
Sales by selling shareholders in this offering will reduce the number of
common shares held by existing shareholders to 4,930,611, or approximately
69.8%, approximately 66.8% if the over-allotment option is exercised in full,
and will increase the number of common shares purchased by new investors to
2,131,838, or approximately 30.2%, or 2,451,614 shares, or approximately 33.2%
if the over-allotment option is exercised in full, of the total number of
common shares.
The above table assumes that the underwriter's over-allotment option is
not exercised. If the underwriter exercises the over-allotment option in full,
it is estimated that the new investors will have paid US $13,918,656 for the
2,319,776 common shares being offered by E-Cruiter, representing approximately
76.5% of the total consideration for 31.5% of the total number of common shares
outstanding. The above table does not give effect to the shares issuable upon
exercise of the options and warrants.
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
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<PAGE>
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 September 8) ......... 1.4870 1.4919 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 September 8, 1999, the noon buying rate
was $1.4870 per US $1.00.
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<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 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 increase in carrying value of the promissory notes from $2,162,063 at
May 31, 1999 to $2,633,554 at October 31, 1999 reflects additional accrued
interest and amortization on the notes during that period and has been
reflected as an increase in the deficit.
The "as further adjusted" column gives effect to receipt of the
anticipated net proceeds of $14,527,685 (US $9,866,000) from the sale of
2,000,000 common shares being offered by us and gives effect to repayment of
the loan described above.
The number of shares presented in the following table does not include:
o the 213,184 shares reserved for issuance upon exercise of the
underwriter's warrants;
o the 516,641 shares reserved for issuance upon exercise of options
granted under our option plan;
o the 250,000 shares reserved for issuance upon exercise of options
available for future grant under our 1999 option plan;
o the 319,776 shares reserved for issuance in this offering to cover
over-allotments, if any, by the underwriter; and
o the 21,693 shares reserved for issuance upon exercise of non-plan
options.
The convertible promissory notes are included in the "actual"
capitalization due to the equity conversion feature and our intention to
convert these notes immediately before the closing of this offering.
The information presented below is in Canadian dollars and includes U.S.
dollar convenience translations using an exchange rate of $1.4725 per US $1.00,
the noon buying rate on May 28, 1999.
<TABLE>
<CAPTION>
(Cdn $)
As of May 31, 1999
-------------------------------------------------
As Further
Actual Adjusted Adjusted
--------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Short-term debt:
Short-term loan ............................ $ -- $ 1,300,000 $ --
Current portion of long-term debt .......... 84,173 84,173 84,173
------------ ------------- ------------
Total .................................... $ 84,173 $ 1,384,173 $ 84,173
============ ============= ============
Convertible promissory notes ................ $ 2,162,063 $ -- $ --
Long-term debt, excluding current portion ... 40,000 40,000 40,000
------------ ------------- ------------
Total ..................................... 2,202,063 40,000 40,000
------------ ------------- ------------
Shareholders' equity (deficit):
Common shares, without par value,
unlimited number authorized;
3,857,479 shares outstanding, actual;
5,062,449 shares, as adjusted (unau-
dited) and 7,062,449 shares, as further
adjusted (unaudited) ...................... 3,541,040 6,367,188 20,894,873
Convertible promissory notes -- equity
component ................................. 135,096 -- --
Deficit .................................... (4,916,440) (5,387,931) (5,387,931)
------------ ------------- ------------
Total shareholders' equity
(deficit) ................................ $ (1,240,304) $ 979,257 $ 15,506,942
------------ ------------- ------------
Total capitalization ..................... $ 961,759 $ 1,019,257 $ 15,546,942
============ ============= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(US $)
As of May 31, 1999
-------------------------------------------------
As Further
Actual Adjusted Adjusted
--------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Short-term debt:
Short-term loan ............................ $ -- $ 882,852 $ --
Current portion of long-term debt .......... 57,163 57,163 57,163
------------- ------------- ------------
Total .................................... $ 57,163 $ 940,015 $ 57,163
============= ============= ============
Convertible promissory notes ................ $ 1,468,294 $ -- $ --
Long-term debt, excluding current portion ... 27,165 27,165 27,165
------------- ------------- ------------
Total ..................................... 1,495,459 27,165 27,165
------------- ------------- ------------
Shareholders' equity (deficit):
Common shares, without par value,
unlimited number authorized;
3,857,479 shares outstanding, actual;
5,062,449 shares, as adjusted (unau-
dited) and 7,062,449 shares, as further
adjusted (unaudited) ...................... 2,404,781 4,324,066 14,190,066
Convertible promissory notes -- equity
component ................................. 91,746 -- --
Deficit .................................... (3,338,838) (3,659,036) (3,659,036)
------------- ------------- ------------
Total shareholders' equity
(deficit) ................................ $ (842,311) $ 665,030 $ 10,531,030
------------- ------------- ------------
Total capitalization ..................... $ 653,148 $ 692,195 $ 10,558,195
============= ============= ============
</TABLE>
Under U.S. GAAP, giving the same effect to the adjustments described as
above, actual, as adjusted and as further adjusted total capitalization as at
May 31, 1999 would be the same as under Canadian GAAP.
21
<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.
Statements of Loss -- Canadian GAAP:
<TABLE>
<CAPTION>
(Cdn $)
Year Ended May 31, (US $)
---------------------------------------------------- Year Ended
1997 1998 1999 May 31, 1999
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
Balance Sheet Data -- Canadian GAAP:
<TABLE>
<CAPTION>
(Cdn $)
As of May 31, (US $)
----------------------------------------------- As of
1997 1998 1999 May 31, 1999
----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
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)
</TABLE>
22
<PAGE>
U.S. GAAP
Canadian GAAP differs from U.S. GAAP, as they affect our financial
statements, in the following material respects:
<TABLE>
<CAPTION>
Canadian dollars US dollar equivalent
Year Ended May 31, 1999 Year Ended May 31, 1999
------------------------- ------------------------
<S> <C> <C>
Net loss in accordance with Canadian GAAP .................... $ (2,212,410) US $(1,502,485)
Compensation expense adjustment for options issued
below fair value ............................................ (125,947) (85,533)
Expense adjustment for convertible promissory notes with
conversion price below the fair value of the shares ......... (2,526,378) (1,715,707)
------------ ----------------
Net loss in accordance with U.S. GAAP ........................ $ (4,864,735) US $(3,303,725)
============ ================
</TABLE>
Our loss per common share for fiscal 1999 under U.S. GAAP was $1.26 (US
$.86) as compared to $.57 (US $.39), the loss per common share under Canadian
GAAP.
Our current liabilities as of May 31, 1999 were $3,845,067 (US $2,611,251)
under U.S. GAAP as compared to $3,376,514 (US $2,293,049) under Canadian GAAP.
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.
23
<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.
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.
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:
24
<PAGE>
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 increase in the
number of 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 increased personnel and increased amortization charges
from the purchase of additional servers and related software. We made
these investments in anticipation of additional business volume in fiscal
2000. We have established a goal of zero unplanned network down time given
that our client commitment is service availability 24 hours a day, seven
days a week, 365 days a year. Accordingly, we expect that expenses in this
area will continue to increase as business volume increases.
Total expense increased by 18.6% in fiscal 1999 to $2,763,198 from
$2,330,397 in fiscal 1998. Expense consists of the following cost categories:
selling, marketing, general and administrative and research and development.
The change in total expenses from fiscal 1998 to fiscal 1999 is explained as
follows:
o Selling expense in fiscal 1999 increased to $818,601 from $652,118 in
fiscal 1998. This selling expense was primarily attributable to increased
selling activities during the final two quarters of fiscal 1999. Five new
sales representatives were hired to provide greater direct sales coverage
in Toronto, Ontario. We expect selling expense to continue to increase as
we enter new markets and expand our selling efforts.
o An increase in general and administrative expenses also contributed to
the overall increase in expense for fiscal 1999. General and
administrative expenses were $725,713 in fiscal 1999 compared to $350,014
in fiscal 1998. These costs were higher largely as a result of an increase
in personnel, consulting fees and increased legal costs. Accrued interest
and amortization costs associated with the issuance of promissory notes in
fiscal 1999 accounted for $104,238 of the higher costs. We did not incur
any of these costs in fiscal 1998.
o An increase in research and development costs to $606,088 in fiscal 1999
from $510,974 in fiscal 1998. This increase reflects the addition of
several new software engineering and software verification personnel
during the latter part of the year. We expect that the increase in
additional personnel will further increase our research and development
costs in fiscal 2000 as the additional costs will be incurred for the full
year. Research and development expenses were partially offset by $103,253
of Canadian federal and provincial government tax credits.
o Lower marketing expenses in fiscal 1999 partially offset our increased
selling, general and administrative and research and development expenses.
Reflecting the change in business strategy in fiscal 1999 described above,
marketing expenses decreased to $612,796 in fiscal 1999 from $817,291 in
fiscal 1998. Upon changing our business focus from a job board business to
a total recruitment management business, we decreased our marketing
expenditures related to the job posting service. We expect that marketing
expenses will increase, however, as we enter new markets.
Our net loss for fiscal 1999 was $2,212,410 compared to a net loss of
$1,846,785 for fiscal 1998.
Fiscal year ended May 31, 1998 compared to fiscal year ended May 31, 1997
Revenue for fiscal 1998 was $870,003 compared to revenue of $85,524 for
fiscal 1997, due to higher sales volume. Fiscal 1998 represented our first full
year of selling our E-Cruiter services. In fiscal 1997, our business was
limited to recruitment advertising through our job board, CareerBridge.com,
which became commercially available in February 1997.
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.
25
<PAGE>
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.
During fiscal 1997, we issued 325,398 common shares to Paul Champagne at a
price of approximately $2.07 per share for proceeds of $675,000. During fiscal
1998, we issued 813,494 common shares to Paul Champagne at a price of
approximately $1.84 per share for proceeds of $1,500,000. During fiscal 1999,
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.
From January 1999 through May 1999, we issued convertible promissory notes
totalling $2,600,000 to 18 investors, bearing interest at 12% per year and
maturing on January 22, 2000. We pledged substantially all of our assets as
security for the notes. The principal and accrued interest on the notes are
convertible into common shares at the rate of approximately .43 shares for
every Canadian dollar of principal and accrued interest on the date of
conversion, the equivalent of approximately $2.30 per share. Immediately before
the closing of this offering, we will convert the notes into approximately
1,198,462 common shares, assuming a closing of this offering on October 31,
1999.
Some of the notes described above were purchased by related parties. On
May 19, 1999, we issued to Mr. Champagne a note in the principal amount of
$1,305,000. This note is convertible into 596,533 shares immediately before the
closing of this offering. On February 24, 1999, Jeff Potts, our Chief Financial
Officer, purchased from us a $10,000 convertible promissory note. Mr. Potts'
note is convertible into 4,694 common shares immediately before the closing of
this offering. On March 18, 1999, Evelyn Ledsham, our Vice President of Sales,
purchased from us a $50,000 convertible promissory note. Ms. Ledsham's note is
convertible into 23,312 common shares immediately before the closing of this
offering. Mr. Champagne, Mr. Potts and Ms. Ledsham are not selling their shares
as part of this offering.
Borrowings from a bank and third-party leasing companies have contributed
to our financing of computer equipment, software and some office equipment. 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 capital
assets. This loan bears interest at the bank's prime lending rate plus 3% per
year and is repayable in equal monthly installments over the period of January
1998 to December 31, 2000. We have pledged the assets purchased as security for
the loan. In April 1999, we obtained a $190,000 loan from 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.
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.
26
<PAGE>
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. We received $2,600,000 in proceeds from the
issuance of 12% senior secured convertible promissory notes which mature on
January 22, 2000. The cost to issue the 18 promissory notes totalled $407,079,
of which $330,000 was accrued and unpaid as of May 31, 1999. We also received
$1,000,000 from the issuance of common shares in fiscal 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.
In fiscal 1998, we raised $1,500,010 through the issuance of common
shares. We also entered into a small business loan agreement with a bank to
borrow $100,000 for the purchase of capital assets. We made repayments on our
small business loan and our capital leases totalling $34,195. 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.
Reflecting the above sources and uses of cash, we had cash and cash
equivalents of $1,505,782 as of May 31, 1999.
In September 1999, Paul Champagne provided us with a $1,300,000 (US
$882,852) loan which bears interest at the Canadian prime lending rate plus 3%
per year. This loan is due on the earlier of March 2000 and the closing of this
offering. We used the proceeds of this loan for working capital and general
corporate purposes.
We need the proceeds of this offering to expand our operations and finance
our future working capital requirements. Based on our current plans and
assumptions relating to our business plan, we anticipate that the net proceeds
of this offering will satisfy our capital requirements for at least 12 months
following the closing of this offering. If our plans change or assumptions
prove to be inaccurate, we may need to seek additional financing sooner than
currently anticipated or curtail our operations. We cannot assure you that the
proceeds of this offering will be sufficient to fund our proposed expansion or
that additional financing will become available when needed. We will be
materially adversely affected if we do not obtain financing when needed. We may
seek additional debt or equity financing to fund the cost of continued
operations.
Net Operating Loss Carryforwards
Our net operating loss carryforwards totalled approximately $4,531,000
(US $3,077,080) as of May 31, 1999. Under the Income Tax Act (Canada)
utilization of prior non-capital losses may be limited after an acquisition of
control. This limitation ensures that non-capital losses of prior years are
applied only against income from the same or similar business that gave rise to
the non-capital losses, provided that such business is carried on with a
reasonable expectation of profit throughout the year. Further, any such
acquisition of 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.
27
<PAGE>
We have incurred scientific research and experimental development
expenditures of approximately $212,000 which remain unused, at May 31, 1999 for
tax purposes. These expenditures can be carried forward indefinitely and
applied against operating income to reduce income taxes otherwise payable in
future years.
Year 2000 Issues
We have devised a plan and have substantially completed our review and
assessment of our hardware and software and believe that our hardware and
software are substantially year 2000 compliant and will continue functioning
and be able to process data on a date from and after January 1, 2000. The costs
of our year 2000 compliance program have not been material, and we do not
expect the additional costs of completing our year 2000 review and assessment
to be material.
We are highly dependent upon third-party job posting partners and job
posting suppliers, Internet service suppliers, and telecommunications
suppliers. As part of our year 2000 compliance program, we have sent letters to
our critical vendors requesting assurances of their compliance. These vendors
have advised us that their reviews indicate that their operating systems are
year 2000 compliant or will be year 2000 compliant in a timely manner. However,
we have not made any inquiries about the year 2000 compliance of our clients'
systems.
Due to the significant uncertainties that exist in the software industry
concerning the potential effects associated with the failure of computer
systems and software to be year 2000 compliant, we cannot be certain that our
systems or the systems of our clients, job seekers and critical vendors will in
fact be year 2000 compliant when January 1, 2000 arrives, nor can we be certain
that we have identified in our assessment all of the potential risks to our
business that could result from matters related to the year 2000. We have
identified the following risks of which you should be aware:
o The failure of our services to be fully year 2000 compliant could result
in claims by or liability to our clients.
o The purchasing patterns of our clients and potential clients may be
materially adversely affected by year 2000 issues because they may be
required to expend significant resources on year 2000 compliance matters,
rather than investing in new online recruitment services such as those we
offer. In addition, as the year 2000 approaches, employers may elect to
spend a greater portion of their recruiting budgets on traditional
recruitment methods rather than risk disruption in their job
advertisements in the event of technical difficulties related to year 2000
problems.
o The third-party job posting boards and other online employment sources
with which we have relationships may face disruptions in their services to
the extent they experience year 2000 problems which could prevent them
from being available for our clients.
o Disruptions caused by year 2000 problems could affect Internet usage
generally, which could result in a decline in the use of our services.
If any of these risks materialize, there could be a serious disruption of
our operations, and our business, operating results and financial condition
would be materially adversely affected. We are currently developing a
contingency plan in the event that any third parties with which we do business
have any material year 2000 compliance problems.
Reconciliation of Canadian GAAP to U.S. GAAP
Canadian GAAP differs from U.S. GAAP, as they affect our financial
statements, in the following material respects:
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.
28
<PAGE>
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.
New Accounting Pronouncements
During the year ended May 31, 1999, we adopted Statement of Position 97-2
"Software Revenue Recognition", or SOP 97-2, and SOP 98-4 "Deferral of the
Effective Date of a Provision of SOP 97-2" which provide guidance in
recognizing revenue from software transactions. SOP 97-2 conforms with Canadian
GAAP, and the adoption of it did not have a material impact on our results for
the year ended May 31, 1999. In December 1998, SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions" was
released. We will adopt SOP 98-9 for our fiscal year ending May 31, 2000 and do
not expect it to have a material impact on our recognition of revenue.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use", or SOP 98-1, which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software generally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We will adopt SOP 98-1 for our fiscal
year ending May 31, 2000 and do not expect it to have a material impact on our
financial statements.
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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.
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In a survey conducted in early 1999 by Corp Tech 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 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
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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 expect to release in early 2000, as it will
provide capabilities and flexibility for original equipment manufacturer
relationships and value-added resellers. 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.
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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, CareerMarketplace 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.
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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 include fixed terms of 3,
6 or 12 months 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, CareerMarketplace 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.
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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 global 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.
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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.
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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.
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.
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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. 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:
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.
38
<PAGE>
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.
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<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 September 15, 1999, we employed on a full-time basis a total of 46
persons, of whom 5 are engaged in executive management, 15 in selling and
marketing activities, 7 in customer support, 15 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.
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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 joined with the Ottawa Heart Institute and Dr. Michael
Cowpland to form 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 company with over 3,000
41
<PAGE>
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 September 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., Leitech Tech Holdings Inc., 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 three 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.
42
<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 an aggregate of 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 265,085.
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
43
<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 and US $1,000,000 on the life of Rajesh Rao.
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 and 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 $8.07 (US $5.48). No additional options will be granted under this plan.
44
<PAGE>
1999 Option Plan
In September 1999, we established a new option plan for our directors and
employees. The intention of this plan is to develop an interest in E-Cruiter
and to provide an incentive to eligible employees and directors to help us grow
and develop.
Eligibility for participation in the plan is limited to our employees and
directors. For United States directors and employees, the common shares to be
optioned will be designated, at the date of grant, as either incentive stock
options or non-qualified stock options. An incentive stock option is an option
granted under the plan, which is designated as such and meets the definition of
section 422 of the Internal Revenue Code of 1986. To meet the definition of
section 422, the individual, at the time the option is granted, cannot own more
than ten percent of all classes of our voting shares, unless the exercise price
of the option is equal to at least 110% of the fair market value of the
underlying common shares. A non-qualified stock option is an option granted
under the plan, which is designated as such and does not constitute an
incentive stock option within the meaning of section 422 of the Internal
Revenue Code.
The number of common shares that may be optioned at any time will be
determined from time to time by our Audit Committee. The plan provides that the
Audit Committee will fix the terms of the option and the option price, but the
option price may not be lower than the fair market value of our common shares
on the date of grant of the option. The options will expire five years after
their grant, and unless otherwise determined by the Audit Committee, awards
will vest one-third each year. In some cases, the Audit Committee may deem it
appropriate to accelerate the vesting period of the options. Options issued
under the plan will be non-transferable and terminate 180 days after the death,
disability or retirement of a participant. Unless otherwise determined by the
Audit Committee, if a participant's employment or services terminate for any
reason other than death, disability or retirement, any options held by the
participant will terminate, except that vested options will be exercisable for
60 days after the termination date.
We have reserved 250,000 common shares for issuance upon exercise of
options granted under this plan, and we have not yet granted any options to any
individuals under this plan.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents information known to us, as of the date of
this prospectus and as adjusted to reflect the sale by us of 2,000,000 common
shares offered under this prospectus and 131,838 common shares to be sold by
selling shareholders, relating to the beneficial ownership of common shares by:
(a) each person who is known by us to be the beneficial holder of more than 5%
of our common shares; (b) our directors and executive officers as a group; and
(c) each selling shareholder.
We believe that all persons named in the table have sole voting and
investment power with respect to all common shares beneficially owned by them.
A person is deemed to be to be the beneficial owner of securities that can
be acquired by that person within 60 days from the date of this prospectus upon
the exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that options, warrants
or other convertible securities that are held by that person, but not those
held by any other person, and which are exercisable within 60 days of the date
of this prospectus, have been exercised and converted. The table also assumes
(a) a base of 5,062,449 common shares outstanding before this offering,
assuming conversion of convertible promissory notes on October 31, 1999, and
(b) a base of 7,062,449 common shares outstanding immediately after this
offering, before any consideration is given to outstanding options or warrants.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Name of Beneficial Owner Owned Before Offering Shares Being Offered Owned After Offering
- ------------------------------------- -------------------------- ---------------------- -------------------------
Number Percentage Number Percentage
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Paul Champagne ...................... 2,386,220 47.1% 0 2,386,220 33.8%
John Gerard Stanton ................. 1,149,738 22.7 0 1,149,738 16.3
Les Kirkland ........................ 374,207 7.4 0 374,207 5.3
Matthew Ebbs ........................ 374,207 7.4 0 374,207 5.3
Roderick Bryden ..................... 36,155 * 0 36,155 *
John McLennan ....................... 27,478 * 0 27,478 *
Directors and executive officers as
a group (8 persons) ................ 1,666,925 32.2 0 1,666,925 23.2
Clarion Finanz A.G. ................. 22,806 * 5,392 17,414 *
Donald Dijkstal ..................... 22,806 * 5,392 17,414 *
John Hanemaayer ..................... 22,806 * 5,392 17,414 *
Hathaway II Limited Partnership ..... 93,448 1.8 22,092 71,356 1.0
William Kertes ...................... 37,927 * 8,966 28,961 *
Peter Miller ........................ 71,113 1.4 16,812 54,301 *
Fevzi Ogleman ....................... 69,958 1.4 16,539 53,419 *
Securities Trading SA ............... 45,612 * 10,783 34,829 *
SteppingStone Funding Partners I
Inc. ............................... 45,612 * 10,783 34,829 *
SteppingStone Funding Partners II
Inc. ............................... 116,186 2.3 27,468 88,719 1.3
Farida Tavares ...................... 4,694 * 1,110 3,584 *
Maurice Tavares ..................... 4,694 * 1,110 3,584 *
</TABLE>
- ------------
* Represents less than 1% of total beneficial ownership of common shares.
46
<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.
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<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 four percent 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.
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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.
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.
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 paid and non-assessable, which are
held of record by 45 shareholders. Upon the closing of this offering, after the
conversion of promissory notes immediately before the closing of this offering
into common shares, approximately 7,062,449 common shares will be issued and
outstanding as fully paid and non-assessable.
Holders of our common shares are entitled to one vote for each share held
on all matters submitted to a vote of shareholders, including the election of
directors. Holders of our common shares do not have any cumulative voting
rights. Accordingly, holders of a majority of our common shares entitled to
vote in any election of directors may elect all of the directors standing for
election.
Holders of our common shares are entitled to receive dividends, if any, as
may be declared by the board of directors out of legally available funds. In
the case of a liquidation, dissolution or winding-up of E-Cruiter, the holders
of our common shares are entitled to receive ratably our net assets available
after the payment of all debts and liabilities and subject to the prior rights
of any outstanding preferred stock.
Holders of our common shares have no pre-emptive, subscription or
conversion rights. There are no redemption or sinking fund provisions
applicable to our common shares. The outstanding common shares are, and the
shares offered by us in this offering will be, when issued in consideration for
the payment of the common shares, fully paid and non-assessable.
Subject to the Canada Business Corporations Act, in the event that we were
to issue a different class of our equity shares, the holders of our common
shares would be entitled to vote separately as a class and to dissent on a
proposal to amend our articles of incorporation to:
o change the maximum number of authorized common shares;
o increase the maximum number of authorized shares of any class or series
of a class having rights or privileges equal or superior to our common
shares;
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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.
Registration Rights
We have granted registration rights under the Securities Act to Messrs.
Champagne, Stanton and Kirkland, with respect to approximately 3,671,540 common
shares that will be held by them on the closing of this offering. We granted
these registration rights in consideration of the agreement of these
shareholders to waive the registration rights to which they were entitled in
connection with this offering. We have filed a copy of the registration rights
agreement with Messrs. Champagne, Stanton and Kirkland as an exhibit to the
registration statement of which this prospectus forms a part. Pursuant to the
registration rights agreement, we have agreed that upon the request of Mr.
Champagne or Mr. Stanton, we will, at our expense on two occasions, in the case
of Mr. Champagne, and, on one occasion in the case of Mr. Stanton, register the
common shares held by them under the Securities Act. Furthermore, whenever we
propose to register any of our shares under the Securities Act for our own
account or for the account of other security holders, we have agreed to
promptly notify the holders of each of the registerable shares of the proposed
registration. We may be required to include all registerable shares which these
holders may request to be included in the registration. Each of Messrs.
Champagne, Stanton and Kirkland is entitled to two piggyback registrations. The
registration rights that we have granted to Messrs. Champagne, Stanton and
Kirkland become exercisable 12 months following the closing of this offering,
and each of them has agreed not to sell or dispose in another manner of the
registerable shares for a period of 12 months following the date of this
prospectus.
In connection with this offering, we have agreed to grant to the
underwriter registration rights in connection with the 213,184 common shares
issuable upon exercise of the underwriter's warrants. These rights are
described in the "Underwriting" section of this prospectus.
Rights of Shareholders under the Canada Business Corporations Act
In accordance with the provisions of the Canada Business Corporations Act,
the following amendments of rights of holders of our common shares requires the
approval of at least two-thirds of the votes cast by the holders of common
shares voting at a special meeting of the holders:
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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;
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:
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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.
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.
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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.
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,
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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.
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
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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.
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
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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;
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.
56
<PAGE>
Pending Legislation
In addition, there is presently pending legislation in the United States
which may result in tax rate reductions for U.S. individuals and in the
indexing for inflation of the adjusted bases of some assets. At present it is
not possible to determine the specific effect that this legislation, if
enacted, might have on holders of our common shares. In view of the
uncertainty, prospective purchasers of our common shares should consult their
own tax advisors.
SHARES ELIGIBLE FOR FUTURE SALE
After the closing of this offering, we will have approximately 7,062,449
common shares issued and outstanding of which the 2,131,838 shares offered by
this prospectus will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by any
affiliate of us. An affiliate of us is generally a person who has a controlling
position with regard to us. Any shares purchased by our affiliates will be
subject to the resale limitations of Rule 144 promulgated under the Securities
Act.
Of the approximately 4,930,611 remaining common shares that will be
outstanding, none are restricted securities as that term is defined under Rule
144. However, approximately 3,938,171 of those shares are held by executive
officers and directors and persons who hold more than 10% of our shares, all of
whom may be deemed to be our affiliates. Consequently these shares will be
subject to the resale limitations of Rule 144. We have also granted options and
warrants to purchase 751,518 common shares, including the 213,184 common shares
issuable upon exercise of the underwriter's warrants.
We have granted registration rights to Paul Champagne, John Gerard Stanton
and Les Kirkland with respect to 3,671,540 shares that will be held by them in
the aggregate on the closing of this offering. We also have granted
registration rights to the underwriter with respect to the 213,184 common
shares issuable upon exercise of the underwriter's warrants. These rights
become exercisable twelve months after the closing of this offering.
The holders of approximately 4,930,611 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
57
<PAGE>
the market price prevailing from time to time. Nevertheless, the possibility
that substantial amounts of common shares may be sold in the public market may
adversely affect the prevailing market price for our common shares and could
impair our ability to raise capital through the sale of our equity securities.
UNDERWRITING
Whale Securities Co., L.P., as underwriter, has agreed, subject to the
terms and conditions contained in the underwriting agreement relating to this
offering, to purchase the 2,000,000 common shares offered by us and 131,838
common shares offered by the selling shareholders.
The underwriting agreement provides that the obligations of the
underwriter are subject to the delivery of an opinion of our counsel and to
various other conditions. The underwriter is committed to purchase and pay for
all of the common shares offered by this prospectus if any of those shares are
purchased.
The underwriter has advised us that it proposes to offer our common shares
to the public at the public offering price indicated on the cover page of this
prospectus. The underwriter may allow selected dealers who are members of the
National Association of Securities Dealers, Inc., known as the NASD,
concessions, not in excess of $. per share, of which not in excess of $. per
share may be reallowed to other dealers who are members of the NASD.
We have granted to the underwriter an option, exercisable not later than
45 days after the date of this prospectus, to purchase up to 319,776 common
shares at the public offering price indicated on the cover page of this
prospectus, less the underwriting discounts and commissions. The underwriter
may exercise this option only to cover over-allotments, if any, made in
connection with the sale of the common shares offered by this prospectus. If
the underwriter exercises its over-allotment in full, the total price to the
public would be US $14,709,684, the total underwriting discounts and
commissions would be US $1,421,936 and the total proceeds to E-Cruiter, before
payment of the expenses of this offering, would be US $12,573,186.
We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds from the sale of the shares offered
by us, including any securities sold pursuant to the underwriter's
over-allotment option, of which US $50,000 has been paid as of the date of this
prospectus. The selling shareholders have agreed to pay the underwriter a
non-accountable expense allowance equal to 3% of the gross proceeds from the
sale of the shares offered by the selling shareholders. We have also agreed to
pay all expenses in connection with qualifying the shares offered under the
laws of the states as the underwriter may designate, including expenses of
counsel retained for this purpose by the underwriter. We estimated our expenses
of this offering to be US $2,134,000, including the underwriter's discounts and
commission, or US $2,377,030 if the underwriter's over-allotment option is
completely exercised.
At the closing of this offering, we will sell to the underwriter and its
designees, for an aggregate of $100, underwriter's warrants to purchase up to
213,184 common shares. The underwriter's warrants are exercisable at any time,
in whole or in part, during the four-year period commencing one year from the
date of this prospectus at an exercise price of US $9.90 per share, 165% of the
public offering price per share. The underwriter's warrants are only assignable
or transferable to the officers and partners of the underwriter and members of
the selling group for one year following the date of this prospectus. During
the exercise period, the holders of the underwriter's warrants will have the
opportunity to profit from a rise in the market price of the common shares,
which will dilute the interests of our shareholders. We expect that the
underwriter's warrants will be exercised when we would, in all likelihood be
able to obtain any needed capital on terms more favorable to us than those
provided in the underwriter's warrants. Any profit realized by the underwriter
on the sale of the underwriter's warrants or the underlying common shares may
be deemed additional underwriting compensation. The underwriter's warrants
contain a cashless exercise provision. We have agreed that, upon the request of
the holders of the majority of the underwriter's warrants, we will, at our own
expense, on one occasion during the exercise period register the underwriter's
warrants and the common shares underlying the underwriter's warrants under the
Securities Act. We have also agreed to include the underwriter's warrants and
all underlying common shares in any appropriate registration statement which is
filed by us under the Securities Act during the seven years following the date
of this prospectus.
58
<PAGE>
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 4,930,611 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.
In connection with this offering, the underwriter may engage in passive
market making transactions in the shares on Nasdaq in accordance with Rule 103
of Regulation M promulgated under the Exchange Act.
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or affect in another manner the price of
our common shares. These transactions may include stabilization transactions
permitted by Rule 104 of Regulation M, under which persons may bid for or
purchase shares to stabilize the market price. Specifically, the underwriter
may over-allot in connection with the offering, creating a short position in
our common shares for its own account. In addition, to cover over-allotments or
to stabilize the price of our common shares, the underwriter may bid for, and
purchase, common shares in the open market. The underwriter may also reclaim
selling concessions allowed to a dealer for distributing the common shares in
the offering, if the underwriter repurchases previously distributed common
shares in transactions to cover short positions, in stabilization transactions
or in another manner. Any of these activities may stabilize or maintain the
market price of our common shares above independent market levels. The
underwriter is not required to engage in these activities, and may end any of
these activities at any time.
LEGAL MATTERS
The validity of the common shares offered by this prospectus and other
matters of Canadian law relating to the offering will be passed upon by
Perley-Robertson, Hill & McDougall, Ottawa, Ontario, a general partnership.
Legal matters relating to the offering will be passed upon for E-Cruiter.com
Inc. by Weil, Gotshal & Manges LLP, New York, New York and for the underwriter
by Tenzer Greenblatt LLP, New York, New York, with respect to U.S. law. Weil,
Gotshal & Manges LLP and Tenzer Greenblatt LLP will rely upon the opinion of
Perley-Robertson, Hill & McDougall with respect to matters governed by Canadian
law.
Mr. Matthew Ebbs, a director of E-Cruiter, is a member of
Perley-Robertson, Hill & McDougall. Mr. Ebbs acquired 374,207 common shares
from Les Kirkland and his spouse in September 1999. Mr. Ebbs continues to hold
these shares.
59
<PAGE>
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 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.
60
<PAGE>
E-Cruiter.com Inc.
Consolidated Financial Statements
Years Ended May 31, 1997, 1998 and 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors ........................................................... F-2
Consolidated Balance Sheets as of May 31, 1998 and May 31, 1999 .......................... F-3
Consolidated Statements of Loss for the Years Ended May 31, 1997, 1998 and 1999 .......... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended May 31,
1997, 1998 and 1999 ..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1997, 1998 and 1999 .... F-6
Notes to Consolidated Financial Statements ............................................... F-7
</TABLE>
F-1
<PAGE>
The share capital reorganization described in note 2(a) to the financial
statements has not been consummated at , 1999. When it has been
consummated, we will be in a position to furnish the following reports:
"Auditors' Report
To the Directors of E-Cruiter.com Inc.
We have audited the consolidated balance sheets of E-Cruiter.com Inc. as at May
31, 1999 and 1998 and the consolidated statements of loss, shareholders' equity
(deficit) and cash flows for the years ended May 31, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 1999 and
1998 and the results of its operations and its cash flows for the years ended
May 31, 1999, 1998 and 1997 in accordance with accounting principles generally
accepted in Canada.
Chartered Accountants
Ottawa, Canada
June 18, 1999, except for note 2(a) which is as of , 1999.
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described
in note 1 to the financial statements. Our report to the directors dated June
18, 1999, except for note 2(a) which is as of , 1999 is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements."
Chartered Accountants
Ottawa, Canada
, 1999"
F-2
<PAGE>
E-Cruiter.com Inc.
Consolidated Balance Sheets
As at May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
--------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (note 3) ................................... $ 194,239 $ 1,505,782
Accounts receivable, net of allowance for doubtful accounts of $20,000
(1998 -- $10,000) ................................................... 370,626 211,757
Prepaid expenses ..................................................... 15,310 101,700
Investment tax credits ............................................... 20,000 68,904
------------ ----------
600,175 1,888,143
Capital assets (note 4) .............................................. 100,651 288,067
------------ ----------
$ 700,826 $2,176,210
============ ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Trade accounts payable and accrued liabilities ....................... $ 269,609 $ 411,159
Accrued compensation ................................................. 35,641 65,650
Accrued debt issue costs ............................................. -- 330,000
Deferred revenue ..................................................... 361,938 323,469
Current portion of long-term obligations (note 5) .................... 100,173 84,173
Convertible promissory notes -- debt component (note 6) .............. -- 2,162,063
------------ ----------
767,361 3,376,514
Long-term obligations (note 5) ....................................... 66,455 40,000
------------ ----------
Total liabilities .................................................... 833,816 3,416,514
------------ ----------
Commitments (note 5)
Shareholders' equity (deficit)
Common shares -- issued and outstanding -- 3,857,479
(1998 -- 3,436,632) (note 2a) ....................................... 2,571,040 3,541,040
Convertible promissory notes -- equity component (note 6) ............ -- 135,096
Deficit .............................................................. (2,704,030) (4,916,440)
------------ -----------
(132,990) (1,240,304)
------------ -----------
$ 700,826 $2,176,210
============ ===========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-3
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Loss
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1997 1998 1999
-------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue ................................................ $ 85,524 $ 870,003 $ 1,399,557
Cost of revenue ........................................ 57,167 386,391 848,769
---------- ------------ ------------
Gross profit ........................................... 28,357 483,612 550,788
---------- ------------ ------------
Expense
Selling ................................................ 125,785 652,118 818,601
Marketing .............................................. 258,256 817,291 612,796
General and administrative ............................. 243,304 350,014 725,713
Research and development ............................... 258,257 510,974 606,088
---------- ------------ ------------
885,602 2,330,397 2,763,198
---------- ------------ ------------
Net loss for the year .................................. $ (857,245) $ (1,846,785) $ (2,212,410)
========== ============ ============
Basic and fully diluted loss per common share .......... $ (0.53) $ (0.58) $ (0.57)
========== ============ ============
Weighted average number of common shares outstand-
ing during the year ................................... 1,620,669 3,191,297 3,854,579
========== ============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-4
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
Total
Number of Convertible Shareholders'
Common Common Promissory Accumulated Equity
Shares Shares Notes Deficit (Deficiency)
------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Issuance of shares ............ 2,628,561 $1,083,530 $ -- $ -- $ 1,083,530
Net loss for the year ......... -- -- -- (857,245) (857,245)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1997 . 2,628,561 1,083,530 -- (857,245) 226,285
Issuance of shares ............ 813,494 1,500,010 -- -- 1,500,010
Redemption of shares .......... (5,423) (12,500) -- -- (12,500)
Net loss for the year ......... -- -- -- (1,846,785) (1,846,785)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1998..... 3,436,632 2,571,040 -- (2,704,030) (132,990)
Issuance of shares ............ 433,863 1,000,000 -- -- 1,000,000
Redemption of shares .......... (13,016) (30,000) -- -- (30,000)
Issuance of convertible
promissory notes -- equity
component .................... -- -- 135,096 -- 135,096
Net loss for the year ......... -- -- -- (2,212,410) (2,212,410)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1999 . 3,857,479 $3,541,040 $135,096 $ (4,916,440) $ (1,240,304)
========= ========== ======== ============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-5
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Cash Flows
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from (used in)
Operating activities
Net loss for the year ......................... $ (857,245) $ (1,846,785) $ (2,212,410)
Amortization of capital assets ................ 35,228 122,484 117,150
Non-cash interest on convertible promissory
notes ........................................ -- -- 104,238
Net change in operating component of
working capital (note 10) .................... 95,669 165,583 20,835
----------- ------------- -------------
(726,348) (1,558,718) (1,970,187)
----------- ------------- -------------
Investing activities
Purchase of capital assets .................... (60,127) (97,413) (105,588)
Advance to related company (note 7) ........... -- (106,083) --
Repayment of advance to related company . -- 106,083 --
----------- ------------- -------------
(60,127) (97,413) (105,588)
----------- ------------- -------------
Financing activities
Proceeds from share issuance .................. 1,083,530 1,500,010 1,000,000
Redemption of shares .......................... -- (12,500) (30,000)
Proceeds from issuance of convertible
promissory notes, net of issue costs ......... -- -- 2,522,921
Proceeds from small business loan ............. -- 100,000 --
Repayment of small business loan .............. -- -- (50,000)
Capital lease payments ........................ -- (34,195) (55,603)
----------- ------------- -------------
1,083,530 1,553,315 3,387,318
----------- ------------- -------------
Increase (decrease) in cash and cash
equivalents .................................. 297,055 (102,816) 1,311,543
Cash and cash equivalents -- Beginning
of year ...................................... -- 297,055 194,239
----------- ------------- -------------
Cash and cash equivalents -- End of year $ 297,055 $ 194,239 $ 1,505,782
=========== ============= =============
Supplementary non-cash information:
Purchase of capital assets under capital lease -- $ (100,822) $ (63,149)
Proceeds from capital leases .................. -- 100,822 63,149
Interest paid ................................. -- (17,332) (20,313)
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-6
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements
(Canadian dollars)
1. Continuing operations
These financial statements have been prepared using generally accepted
accounting principles that are applicable to a going concern, which assumes
E-Cruiter.com Inc. (the "Company") will realize its assets and discharge its
liabilities in the normal course of business. As such, the financial statements
do not reflect adjustments in the carrying values of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used,
that would be necessary if the going concern assumption were not appropriate,
and such adjustments could be material.
The Company incurred operating losses during the years ended May 31, 1999,
1998 and 1997 and, therefore, there is substantial doubt about the Company's
ability to continue. The Company needs to secure additional equity or debt
financing. Management is currently pursuing an initial public offering or
additional private placements of its shares to be completed within the next six
months, and is therefore of the opinion that the Company will be able to obtain
sufficient equity financing to meet its liabilities and commitments as they
become payable.
2. Significant accounting policies
a) Basis of presentation
These financial statements have been prepared by management in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP") and
include the accounts of E-Cruiter.com Inc. and its wholly-owned subsidiary,
3451615 Canada Inc. These principles also conform in all material respects with
accounting principles generally accepted in the United States ("U.S. GAAP")
except as described in Note 14.
As at May 31, 1999, the share capital of the Company consisted of
authorized Class A, B and C common shares and Class A, B, C and D special
shares of which Class A common and Class D special shares were issued. All per
share amounts and number of common shares in these consolidated financial
statements, for all periods presented, have been restated to give retroactive
effect to the filing of Articles of Amendment to (i) create an unlimited number
of a single class of common shares; (ii) convert the outstanding Class A common
and Class D special shares into common shares on the basis of one Class A
common share and one Class D special share into .216932 of a common share;
(iii) cancel all authorized Class A, B, and C common shares and Class A, B, C,
and D special shares; and (iv) convert all of the options to purchase Class D
special shares into options to purchase the converted number of common shares
at converted exercise prices, which are to become effective in October 1999.
The holders of the common shares will be entitled to one vote at meetings of
shareholders for each common share held and to receive dividends as and when
declared by the Board of Directors.
b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
c) Cash equivalents
Cash equivalents are defined as highly liquid investments with terms to
maturity at acquisition of three months or less.
d) Investment tax credits
Investment tax credits, which are earned as a result of qualifying
research and development expenditures, are recognized when the expenditures are
made and their realization is reasonably assured and are applied to reduce the
related research and development capital costs and expenses in the year.
F-7
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
2. Significant accounting policies -- (Continued)
e) Capital assets
Capital assets are recorded at cost. Amortization is based on the
estimated useful life of the asset and is recorded as follows:
Furniture, equipment and leaseholds 20% declining balance
Office equipment 33% declining balance
Computers and software 60% declining balance
f) Income taxes
Income taxes are provided for using the liability method whereby deferred
tax assets and liabilities are recognized using current tax rates on the
difference between the financial statement carrying amounts and the respective
tax basis of assets and liabilities.
g) Financing issue costs
Issue costs of convertible debt instruments are allocated between the debt
and equity components of the instruments in the same ratio as the gross
proceeds. These costs are netted against the proceeds and the portion allocated
to the debt component is amortized against earnings over the term of the
instruments.
h) Capital stock
Capital stock is recorded as the net proceeds received on issuance after
deducting all share issue costs.
i) Revenue recognition
Membership revenue and related services are recognized on a ratable basis
over the term of the contract. Revenue from posting services is recognized when
the job requisition is posted.
j) Research and development costs
The Company expenses all research costs as incurred. Development costs are
expensed in the year incurred unless a development project meets the criteria
under generally accepted accounting principles for deferral and amortization.
No amounts have been capitalized to date.
k) New accounting pronouncement
The Company has adopted the Canadian Institute of Chartered Accountants'
new recommendations on the presentation of the statement of cash flows. The
Company has restated prior years to conform to the new recommendations.
3. Cash equivalents
The Company's cash equivalents of $1,000,000 as at May 31, 1999 consist of
guaranteed investment certificates of a Canadian Chartered Bank. These cash
equivalents represent the Company's only significant concentration of credit
risk.
F-8
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
4. Capital assets
<TABLE>
<CAPTION>
1998 1999
----------- ----------------------------------------
Accumulated
Net Cost amortization Net
----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Furniture, equipment and leaseholds ......... $ 3,629 $ 25,632 $ 15,505 $ 10,127
Office equipment ............................ 23,100 58,858 32,595 26,263
Computers and software ...................... 73,922 484,945 233,268 251,677
-------- -------- -------- --------
$100,651 $569,435 $281,368 $288,067
======== ======== ======== ========
</TABLE>
As at May 31, 1998 accumulated amortization was $157,712. As at May 31,
1999, capital assets include assets under capital lease of $81,573 (1998 --
$57,501) net of accumulated amortization of $83,122 (1998 -- $44,045).
5. Long-term obligations and other commitments
In 1998, the Company entered into a $100,000 small business loan agreement
with a Canadian Chartered Bank to finance the purchase of certain capital
assets. The balance of the loan at May 31, 1999 was $50,000 (1998 -- $100,000).
An additional facility was arranged in April 1999 for $190,000, but was not
drawn as at May 31, 1999. Under both agreements, the principal is repaid over a
24-month period and interest is accrued at the rate of prime plus 3%. Assets
financed by the loans are pledged as collateral.
As at May 31, 1999 capital lease obligations totalled $74,173 including
the current portion of $34,173 which is due in 1999. The leases were for office
equipment, computers and software and bear interest at rates varying from 12.3%
to 27.0% per annum, and mature at varying times from June 2000 to June 2003.
The Company has also committed to operating leases for its office
facilities and vehicles. Future minimum payments for both operating and capital
leases are as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Operating leases .......... $255,000 $245,500 $141,000 $ --
Capital leases
Principal ................ 34,173 29,020 8,200 2,780
Interest ................. 11,658 5,261 907 200
-------- -------- -------- ------
Total payments ............ $300,831 $279,781 $150,107 $2,980
======== ======== ======== ======
</TABLE>
Rent expense for the year ended May 31, 1999 was $207,085 (1998 --
$134,858, 1997 -- $62,496).
F-9
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
6. Convertible promissory notes
The Company issued 12% convertible promissory notes (the "Notes") as
follows:
Debt Equity
Month issued Face Value Component Component
- ------------ ---------- --------- ---------
January, 1999 ............. $ 300,000 $ 268,800 $ 31,200
March, 1999 ............... 400,000 359,498 40,502
April, 1999 ............... 200,000 184,319 15,681
May, 1999 ................. 1,700,000 1,627,209 72,791
---------- ---------- ---------
2,600,000 2,439,826 160,174
Less: Issue costs ......... (407,079) (382,001) (25,078)
---------- ---------- ---------
2,192,921 2,057,825 135,096
Accrued interest .......... -- 104,238 --
---------- ---------- ---------
$2,192,921 $2,162,063 $ 135,096
========== ========== =========
The Notes, which mature January 22, 2000, are convertible at any time at
the Note holders' option into 0.434 common shares for every dollar of the face
value plus accrued interest to the date of conversion without payment of
additional consideration, the equivalent of $2.30 per share. The Notes are
convertible at the Company's option immediately prior to a public offering of
the Company's common shares using the same conversion factor. The Company has
executed a general security agreement against all its assets as collateral for
the Notes. The Notes are being accounted for in accordance with their substance
and are presented in the financial statements in their component parts,
measured at their respective fair values at the time of issue. The debt
component has been calculated as the present value of the required 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
=======
Subsequent to May 31, 1999, 86,140 options were granted under the 1997
Plan with an exercise price of US $6.00 per share and 10,847 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)
<PAGE>
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.
<PAGE>
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) (160,246)
---------- ------------ ------------
Pro forma net loss ..................................... $ (857,245) $ (1,866,785) $ (5,024,981)
========== ============ ============
Pro forma basic loss per share ......................... $ (0.53) $ (0.58) $ (1.30)
========== ============ ============
</TABLE>
F-14
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
14. United States accounting principles -- (Continued)
The weighted average fair value of the options issued during the year
ended May 31, 1999, as calculated using the Black-Scholes option pricing model
was $5.35 (1998 -- $0.45, 1997 -- $0.45). Of the options issued during the year
ended May 31, 1999, 280,927 were issued with exercise prices below the fair
value at the date of grant. The weighted average fair value of these options
was $6.50 and the weighted average exercise price was $2.93. The remaining
71,045 options were issued with exercise prices equal to fair value. The
weighted average fair value of these options was $0.78 and the weighted average
exercise price was $3.65.
The fair value of each option granted during 1997 to 1999 is estimated on
the date of the grant using the minimum value method with the following
weighted average assumptions:
1997 1998 1999
-------- -------- --------
Expected option life, in years .......... 4.5 4.5 4.5
Risk free interest rate ................. 5.0% 5.0% 5.0%
Dividend yield .......................... nil nil nil
d) Revenue recognition
During the year ended May 31, 1999, the Company adopted Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" and SOP 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2" which provide guidance in
recognizing revenue from software transactions. SOP 97-2 conforms with Canadian
GAAP and the adoption of it did not have a material impact on the Company's
results for the year ended May 31, 1999. In December 1998, SOP 98-9
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions" was released. The Company will adopt SOP 98-9 for its fiscal year
ending May 31, 2000 and does not expect it to have a material impact on its
revenue recognition.
e) Other recent accounting pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company will adopt SOP 98-1 for its
fiscal year ending May 31, 2000 and does not expect it to have a material
impact on its financial statements.
15. Subsequent events (Unaudited)
a) Initial public offering
In September 1999, the Company filed a registration statement with the
United States Securities and Exchange Commission for a public offering by the
Company of 2,000,000 common shares at a price of US $6.00 per share (the
"Offering"). In connection with the Offering, the Company will provide to the
underwriter an underwriting discount and commission of US $.58 per share and
the Company will also pay a 3% non-accountable expense allowance to the
underwriter plus all other expenses of the Offering. At the time of closing,
for an aggregate of $100 the Company will issue warrants to the underwriter for
up to 213,184 common shares which are exercisable for a four year period
commencing one year after the date of the registration statement at US $9.90
per share. In addition, for the purposes of covering over-allotments, the
underwriter will have an option to purchase from the Company up to an
additional 319,776 common shares for a period of 45 days after the closing of
the Offering. Such over-allotment option shall be exercisable on the same terms
and conditions as the initially offered common shares.
F-15
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
15. Subsequent events (Unaudited) -- (Continued)
b) Pro-forma EPS assuming conversion of convertible promissory notes
Immediately prior to filing the registration statement, the Company plans
to convert the Notes into common shares of the Company. If the Notes had been
converted into common shares immediately upon issue, the weighted average
number of common shares outstanding for the year ended May 31, 1999 would have
been 3,960,964 and the number of shares outstanding at May 31, 1999 would have
been 4,985,524. In addition, the non-cash interest expense on the Notes of
$104,238 and $30,616 under Canadian GAAP and U.S. GAAP respectively would not
have been incurred, resulting in a pro-forma basic and fully diluted loss per
common share for the year ended May 31, 1999 as follows:
Canadian GAAP...............................................$(0.53)
U.S. GAAP...................................................$(1.22)
F-16
<PAGE>
[Inside Back Cover]
E-Cruiter Applicant Manager
E-Cruiter's Applicant Manager enables recruiters to track and manage all job
applicants through the recruiting process.
[GRAPHIC OMITTED: Image of E-Cruiter Enterprise 2.3 desktop showing various
open windows. The following text is incorporated into the graphics:
o E-Cruiter enables a more effective hiring process by allowing recruiters to
easily search, share, transfer, annotate, decline, e-mail and export
applicant files.
o All applications for a specific job opening flow, in real-time, directly to
the human resource professional's desktop in a standard format for review
and comment.
o Throughout the hiring process, E-Cruiter manages all communication between
job seekers, hiring managers and human resources. Communication with job
applicants via e-mail is significantly enhanced through resume
auto-acknowledgment, interview scheduling and automatically sending decline
messages to multiple applicants.]
<PAGE>
================================================================================
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this prospectus.
You must not rely on any unauthorized information. This prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful.
---------------------
TABLE OF CONTENTS
Prospectus Summary ................................. 3
Risk Factors ....................................... 8
Cautionary Statement Regarding Forward-
looking Statements .............................. 16
Use of Proceeds .................................... 17
Dilution ........................................... 19
Dividends .......................................... 19
Exchange Rates ..................................... 20
Capitalization ..................................... 21
Selected Financial Data ............................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 24
Business ........................................... 30
Management ......................................... 41
Principal and Selling Shareholders ................. 46
Related Party Transactions ......................... 48
Description of Common Shares ....................... 49
Material Income Tax Considerations ................. 51
Shares Eligible for Future Sale .................... 57
Underwriting ....................................... 58
Legal Matters ...................................... 59
Experts ............................................ 60
Additional Information ............................. 60
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>
================================================================================
E-Cruiter.com Inc.
2,131,838
Common Shares
--------------------------
Prospectus
--------------------------
Whale Securities Co., L.P.
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table lists the expenses that are payable by E-Cruiter.com
Inc. in connection with the offering described in the registration statement,
other than underwriting discounts and commissions. All amounts are estimates
except the SEC registration fee, the NASD and the Nasdaq listing fee.
SEC fee ............................................. US$4,089.29
NASD filing fee ..................................... 1,971.00
Nasdaq listing fee .................................. 7,500.00
Blue sky fees and expenses .......................... 50,000.00
Printing and engraving expenses ..................... 125,000.00
Legal fees and expenses ............................. 255,000.00
Accounting fees and expenses ........................ 95,000.00
Transfer Agent fees ................................. 3,500.00
Underwriter's non-accountable expense allowance ..... 360,000.00
Miscellaneous ....................................... 71,939.71
---------------
TOTAL ............................................ US$974,000.00
===============
Item 14. Indemnification of Directors and Officers
Limitation on Liability and Indemnification Matters
Under the Canada Business Corporations Act, except with respect to an
action by us or on behalf of us to procure a judgment in our favor, we have a
right to indemnify any of our officers or directors or any former officers or
directors, who act or have acted at our request as officers or directors
against any costs, charges or expenses for amounts paid by him to settle an
action in respect of any civil, criminal or administrative action or proceeding
to which he is made a party by reason of having been our director if:
(a) he has acted honestly and in good faith with a view toward our best
interests; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by monetary penalty, he had reasonable grounds for believing
his conduct was lawful.
We make the determination in (a) and (b) above.
Further, we may, with the approval of a court, indemnify a person who is a
director, officer or former director or officer with respect to an action by or
on behalf of us to procure a judgment in our favor to which he is made a party
by reason of having been our officer or director, against all costs, charges
and expenses reasonably incurred by him in connection with that action if:
(a) he has acted honestly and in good faith with a view toward our best
interests; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty he had reasonable grounds for believing his
conduct was lawful.
A director, officer or former director or officer of ours is also entitled
to indemnification from us with respect to all costs, charges and expenses
reasonably incurred by him in connection with the defense of any civil,
criminal or administrative action or proceeding to which he is a party by
reason of being or having been a director or officer of ours, if he:
(a) was substantially successful on the merits in his defense of the action
or proceeding;
(b) acted honestly and in good faith with a view toward our best interests;
and
(c) in the case of a criminal or administrative action or proceeding that
was enforced by a monetary penalty, had reasonable grounds for believing that
his conduct was lawful.
II-1
<PAGE>
In addition, our by-laws provide that no director or officer is liable for
the acts of any other director or officer or employee or for any loss or damage
to us unless it is caused by his own willful neglect or default. However, the
limitation against liability does not extend or grant any director or officer
protection against the breach of any law. The by-laws also provide for an
indemnity similar to the provisions contained in the Canada Business
Corporations Act and subject to the same limitations.
Our by-laws provide that, subject to the Canada Business Corporations Act,
we can purchase and maintain indemnity insurance for the benefit of our
directors and officers as may be determined from time to time by our directors.
We maintain a policy of insurance under which our directors and officers are
insured, subject to the limits of the policy, against certain losses arising
from claims made against them as officers and directors and by reason of any
acts or omissions covered under the policy, in their respective capacities as
directors or officers, including liability under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons in
relation to the above provisions, or permitted in any other circumstance, we
have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
Described below are all securities which E-Cruiter.com Inc. has issued
during the prior 3 years in transactions not involving public offerings. All
issuances have been made in reliance on Rule 903 of Regulation S promulgated
under the Securities Act of 1933, in offers or sales to non-U.S. persons which
occurred outside the United States within the meaning of Rule 901 of the
Securities Act. All amounts in this Item 15 are given in Canadian dollars.
(a) On August 1, 1996, we issued 6 million Class A Common Shares to John
Gerard Stanton, our president and Chief Executive Officer, and members
of his family, for aggregate consideration of $60,030.
(b) On December 1, 1996, we issued 4 million Class A Common Shares to Les
Kirkland, a former director, and members of his family, for aggregate
consideration of $40,010.
(c) In December 1996, we issued 557,000 Class D Special Shares to 29
individuals for aggregate consideration of $278,500.
(d) On February 28, 1997, we issued 60,000 Class D Special Shares to 6
individuals for aggregate consideration of $30,000.
(e) On March 10, 1997, we issued 944,444 Class D Special Shares to Paul
Ebbs for aggregate consideration of $425,000, and on May 13, 1997, we
issued an additional 555,556 Class D Special Shares to Paul Ebbs for
aggregate consideration of $250,000.
(f) On June 16, 1997, we issued 10,000 Class D Special Shares to an
individual for aggregate consideration of $5,000.
(g) On September 19, 1997, we exchanged 1,500,000 Class D Special Shares
held by Paul Ebbs into an equal number of Class A Common Shares, and
issued an additional 3,750,000 Class A Common Shares to him. We received
no additional consideration for the shares exchanged and received
aggregate consideration of $1.5 million for the additional shares
issued.
(h) On June 11, 1998, we issued 2 million Class A Common Shares to Paul
Champagne for aggregate consideration of $1 million.
(i) On September 13, 1999, we issued 30,000 Class D Special Shares to
SteppingStone Capital Corporation in consideration of consulting
services rendered to E-Cruiter.com Inc.
(j) Between January 22, 1999 and May 27, 1999, we issued $2.6 million
principal amount of 12% senior secured convertible promissory notes to
18 investors, including some of our officers and key
II-2
<PAGE>
employees. We received aggregate consideration of $2.6 million for these
notes. We paid SteppingStone Capital Corporation a success fee for
assisting us in structuring the notes. These notes bear interest at 12%
per year and their principal and interest is convertible to shares of our
common stock at the rate of 2 shares per dollar.
No brokers or underwriters were included in any of the above issuances,
except in connection with the issuance of our 12% senior secured convertible
promissory notes where we engaged SteppingStone Capital Corporation as our
financial advisor to structure the notes and paid it a success fee upon
completion of the issuance.
The share certificates issued above have the following restrictive legend:
"There are restrictions on the right to transfer the shares represented by this
certificate."
The share certificates for the new class of common shares will not have
any restrictive legends.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement.
3.1 Articles of Incorporation, as amended.*
3.2 By-laws.
4.1 Specimen common share certificate.*
4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of Exhibit 3.1).*
5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares.*
10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard Stanton and
Les Kirkland, dated September 21, 1999.*
10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July 22, 1996.*
10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24, 1999.
10.4 Lease Agreement between Drake Beam Morin (0ttawa) Inc. and Omers Realty Corporation, dated
November 16, 1993.*
10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc., dated August
1, 1999.
10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February 23, 1999.*
10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.
10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan.*
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>
- ------------
* to be filed by amendment
II-3
<PAGE>
(b) Financial Statement Schedules
E-Cruiter.com Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Provision Balance at
Beginning for Doubtful End of
of Period Accounts Deductions Period
$ $ $ $
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
For the year ended May 31, 1997 Allowance for
doubtful accounts .......................... -- 10,000 -- 10,000
------ ------ ------- ------
For the year ended May 31, 1998 Allowance for
doubtful accounts .......................... 10,000 450 (450) 10,000
------ ------ ------- ------
For the year ended May 31, 1999 Allowance for
doubtful accounts .......................... 10,000 40,742 (30,742) 20,000
------ ------ ------- ------
</TABLE>
Item 17. Undertakings
1. E-Cruiter.com Inc. hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of E-Cruiter.com Inc. pursuant to the foregoing
provisions, or otherwise, E-Cruiter.com Inc. has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by E-Cruiter.com Inc. of expenses
incurred or paid by a director, officer or controlling person of
E-Cruiter.com Inc. in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, E-Cruiter.com Inc. will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3. E-Cruiter.com Inc. hereby undertakes that, for purposes of determining any
liability under the Securities Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by E-Cruiter.com Inc.
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
4. E-Cruiter.com Inc. hereby undertakes that, for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this 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 21st day
of September, 1999.
E-Cruiter.com Inc.
By: /s/ John Gerard Stanton
--------------------------------
John Gerard Stanton
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John Gerard Stanton and Jeffery E. Potts
and each of them severally, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, to sign for him and in his
name, place and stead, in any and all capacities, any and all amendments(
including post-effective amendments) to this registration statement and any
related Rule 462(b) registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that all said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirement of the Securities Act of 1933, this
registration statement has been signed by the following officers and directors
of the registrant in the indicated capacities on the 21st day of September,
1999.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Gerard Stanton Chairman of the Board, Chief Executive September 21, 1999
----------------------- Officer and President
John Gerard Stanton
/s/ Jeffery E. Potts Chief Financial Officer and Principal September 21, 1999
----------------------- Accounting Officer
Jeffery E. Potts
/s/ Roderick M. Bryden Director September 21, 1999
-----------------------
Roderick M. Bryden
/s/ John McLennan Director September 21, 1999
-----------------------
John McLennan
/s/ Matthew J. Ebbs Director Nominee September 21, 1999
-----------------------
Matthew J. Ebbs
</TABLE>
II-5
<PAGE>
Authorized Representative in the United States
E-Cruiter.Com USA Inc.
By: /s/ Jeffery E. Potts
----------------------------------
Name: Jeffery E. Potts
Title: Secretary
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement.
3.1 Articles of Incorporation, as amended.*
3.2 By-laws.
4.1 Specimen common share certificate.*
4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of
Exhibit 3.1).*
5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares.*
10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard
Stanton and Les Kirkland, dated September 21, 1999.*
10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July
22, 1996.*
10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24,
1999.
10.4 Lease Agreement between Drake Beam Morin (Ottawa) Inc. and Omers Realty Corporation,
dated November 16, 1993.*
10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc.,
dated August 1, 1999.
10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February
23, 1999.*
10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.
10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan.*
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>
- ------------
* to be filed by amendment
<PAGE>
E-Cruiter.com Inc.
2,131,838 Common Shares
(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 (2,000,000) 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,
____________________, ____________________ and ____________________ (the
"Selling Shareholders") propose to sell to the Underwriter an aggregate of one
hundred thrity 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
nineteen thousand seven hundred seventy six (319,776) 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 thirteen thousand one hundred eighty four (213,184)
Common Shares (the "Warrant Shares") at an exercise price of $9.90 per
Warrant Share, which sale will be con-summated 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 $5.42 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.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the Company and
the Selling Shareholders by wire transfer or certified 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,
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<PAGE>
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 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 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 certified or
-3-
<PAGE>
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 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 (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
E-Cruiter Software Inc., a corporation duly organized, validly existing and in
good standing under the laws of ___________________________ (the "Subsidiary").
Unless the context otherwise requires, all references to the "Company" in this
Agreement shall include the Subsidiary. The Subsidiary 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. Each of the Company and the
-4-
<PAGE>
Subsidiary 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 or the Subsidiary (a "Material Adverse Effect").
The Company owns all of the issued and outstanding shares of capital
stock of the Subsidiary, 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 Subsidiary. Other than the Subsidiary, the
Company has no equity interests in any entity.
(b) 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 Subsidiary; (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 Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or the Subsidiary is a party or by which the Company or the Subsidiary 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 Subsidiary 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
-5-
<PAGE>
the Company or the Subsidiary 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
Subsidiary to make use thereof.
(c) 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.
(d) 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-_____________) 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.
(e) 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.
-6-
<PAGE>
(f) 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 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.
(g) 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.
(h) 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.
(i) 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
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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 are complete,
correct and present fairly the financial position of the Company as of the dates
thereof, and the results of operations and changes in financial position 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 except as otherwise stated in the Registration Statement and
the Prospectus. 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.
(j) Each of the Company and the Subsidiary has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all tax returns, including
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 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 the Subsidiary 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 Subsidiary.
(k) 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
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<PAGE>
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. 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.
(l) 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.
(m) 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
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.
(n) 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
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Warrants conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
(o) Neither the Company nor the Subsidiary 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, the Subsidiary or any
of the properties or businesses of the Company or the Subsidiary, 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. Each of the Company and the Subsidiary
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.
(p) 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 the Subsidiary or involving the
properties or business of the Company or the Subsidiary which, if determined
adversely to the Company or the Subsidiary, 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 the Subsidiary 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 the Subsidiary and
enjoining the Company or the Subsidiary from taking, or requiring the Company or
the Subsidiary to take, any action, or to which the Company or the Subsidiary,
or the property or business of the Company or the Subsidiary, is bound or
subject.
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<PAGE>
(q) 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.
(r) Each of the Company and the Subsidiary 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 the Company's knowledge, neither the Company nor
the Subsidiary has infringed or is infringing upon the rights of others with
respect to Intangibles; and neither the Company nor the Subsidiary 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 the Subsidiary.
(s) 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 the Subsidiary 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
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.
(t) Neither the Company nor the Subsidiary owns any real property.
Each of the Company and the Subsidiary 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 the Subsidiary. The leases, licenses or other contracts or
instruments under which
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<PAGE>
the Company and the Subsidiary 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 the Subsidiary, 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
the Subsidiary, 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 the Subsidiary has received notice of
any violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties. Each of the Company and of the
Subsidiary 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.
(u) Each contract or other instrument (however characterized or
described) to which the Company or the Subsidiary is a party or by which the
properties or businesses of the Company or of the Subsidiary 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 the
Subsidiary, and neither the Company nor the Subsidiary, 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.
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 the
Subsidiary or any of their respective assets or businesses, including, without
limitation, those promulgated by the Commission, and comparable state and local
regulatory authorities.
(v) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees and consultants and
between the Subsidiary and their respective officers, employees and consultants,
described in the Registration Statement, are binding and
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<PAGE>
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.
(w) 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.
(x) 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 its Subsidiaries
or is imminent which could adversely affect the Company or the Subsidiary.
(y) Neither the Company nor the Subsidiary 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 Foreign Corrupt
Practices Act of 1977, as amended.
(z) The Shares have been approved for listing on the Nasdaq SmallCap
Market and [the Boston Stock Exchange] [Pacific Stock Exchange].
(aa) 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.
Any certificate signed by an officer of the Company, by an officer
of a Subsidiary 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, the Subsidiary or the Selling Shareholder, as the
case may be, to the Underwriter as to the matters covered thereby.
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<PAGE>
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 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 have been furnished to the Company by such Selling Shareholder for
such use.
(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 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
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<PAGE>
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 object in writing.
(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
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<PAGE>
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 signed copy of the Registration Statement as originally 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 signed 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.
(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
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<PAGE>
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) and exhibits
thereto, filed or furnished to the Commission, any securities exchange or the
National Association of Securities Dealers, Inc. (the "NASD") on 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; (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 designed to or which might be
reasonably expected to cause or result in the stabilization or manipulation of
the price of the Common Shares.
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(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 Pacific
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 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
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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 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 offer for sale or sell or otherwise 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.
(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.
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(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 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
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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. 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 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.
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(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 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 continue to retain PricewaterhouseCoopers, LLP (or such other
nationally recognized accounting firm 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 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
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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.
(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.
(ab) 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.
(ac) 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.
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 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 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.
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(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
Weil, Gotshal & Manges LLP and Perley-Robertson, Hill and McDougal, counsels 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
E-Cruiter Software Inc., a corporation duly organized, validly existing and in
good standing under the laws of _____________________ (the "Subsidiary"). Unless
the context otherwise requires, all references to the "Company" shall include
the Subsidiary. The 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. Each of the Company and the Subsidiary
is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions wherein such qualification is necessary and
failure so to qualify could have a Material Adverse Effect.
The Company owns all of the issued and outstanding shares of capital
stock of the 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. 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 Subsidiary. To the best of Company Counsel's
knowledge, other than the Subsidiary, the Company has no equity interests in any
entity.
(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
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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. This
Agreement is (assuming for the purposes of this opinion that it is valid and
binding upon the other party thereto) and, when executed and delivered by the
Company on the Closing Date, the Underwriter's Warrant Agreement will be, valid
and binding obligations of the Company, enforceable in accordance with their
respective 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 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 federal securities laws or public policy underlying
such laws.
(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 ByLaws, each as amended, of the Company or the 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 the Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other material agreement or instrument to which
the Company or the Subsidiary is a party or by which the Company, the Subsidiary
or any of the properties or assets of the Company or the Subsidiary 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, the Subsidiary or any of the
properties or businesses of the Company or the Subsidiary; or (D) to the best of
Company Counsel's knowledge, have any effect on any Permit necessary for the
Company or the Subsidiary to own or lease, as the case may be, and operate its
properties or conduct its business or the ability of the Company or the
Subsidiary to make use thereof.
(iv) To the best of Company Counsel's knowledge, no Permits of
any court or governmental agency or body
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<PAGE>
(other than under the Act, the Regulations and applicable state securities or
Blue Sky laws) 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 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,
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 and except
that enforceability of the indemnification provisions set forth in Section 8 of
the Agreement and the contribution provisions set forth in Section 9 of the
Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(vi) The Registration Statement has become effective under the
Act; to the best of Company Counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending, threatened or contemplated
under the Act or applicable state securities laws.
(vii) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its effective or
issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations.
(viii) 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,
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<PAGE>
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, the Subsidiary or any of their
respective assets or businesses.
(ix) 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. 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. 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.
(x) To the best of Company Counsel's knowledge, each Selling
Shareholder has valid and marketable title to the Selling Shareholders' Shares
to be sold by such Selling Shareholder, free and clear of any security interest,
lien, encumbrance claim, charge, restriction on transfer or other defect, and
each Selling Shareholder is an adult individual having full legal capacity and
power to enter into the Agreement and his or her Power of Attorney and to sell
the Selling Shareholders' Shares.
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<PAGE>
(xi) 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.
(xii) 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.
(xiii) Upon delivery of the 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 Business
Corporations Act (Ontario) will acquire title to the Offered Shares, free of any
adverse claims as defined in the Business Corporations Act (Ontario).
(xiv) 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 Uniform Commercial Code) will acquire good
title to such Optional Shares, free and clear of any adverse claims as defined
in the Business Corporations Act (Ontario).
(xv) 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
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private arbitration tribunal, pending or threatened against the Company or the
Subsidiary, or involving the Company's or any Subsidiary's properties or
businesses, other than as described in the Prospectus, such description being
accurate, 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.
(xvi) Each of the Company and the Subsidiary 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 the Subsidiary 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 the Subsidiary 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 the Subsidiary other than those licenses which the Company and the Subsidiary
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 patent area.
Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, 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
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necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Each counsel giving an
opinion must give the opinion set forth in this paragraph as to such subject
matter of its opinion.
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 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 Section 7(b) 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.
(d) 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
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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, 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, 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
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(d) 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 all covenants and complied 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 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.
(e) 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
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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 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.
(f) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares to be sold on the Closing Date.
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(g) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(h) 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.
(i) The Company meets the current and any existing and proposed
criteria for inclusion of the Shares on Nasdaq SmallCap Market.
(j) 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 request for the purpose of enabling them to pass upon the matters
referred to in Section 7(c) 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.
(k) 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,
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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
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
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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).
(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
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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
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
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<PAGE>
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 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
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<PAGE>
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
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
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<PAGE>
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 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 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.
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
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<PAGE>
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. 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 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.
14. 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
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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.
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:
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SCHEDULE A
Selling Shareholder Address Number of Shares
- ------------------- ------- ----------------
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WARRANT AGREEMENT dated as of ______, 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 213,184 (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 ____________, 1999
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed public offering (the "Public Offering") of 2,131,838
Common Shares (the "Public Shares"), of which 2,000,000 Common Shares are being
sold by the Company and 131,838 Common Shares are being sold at an initial
public offering price of $6.00 per Public Share; and
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
<PAGE>
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 __________, 2000 until 5:00 P.M., New York
time, on _______, 2004 (the "Warrant Exercise Term"), up to 213,184 fully-paid
and non-assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $9.90 per Share.
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 $9.90 per Share, payable in cash or by check to the order of the
Company, or any combination thereof,
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<PAGE>
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.
3.2. 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
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<PAGE>
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) 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
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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. 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
under its corporate seal reproduced thereon, attested to by the
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<PAGE>
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. 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.
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<PAGE>
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $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.
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
-7-
<PAGE>
"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.
7.3. 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 covering equity or
debt 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
-8-
<PAGE>
("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(d)
hereof).
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(c) 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
-9-
<PAGE>
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.
(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) 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.
7.5. Covenants of the Company With Respect to Registration.
The Company covenants and agrees as follows:
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<PAGE>
(a) In connection with any registration under Section
7.4 hereof, the Company shall file the Registration Statement as expeditiously
as possible, but in any event no later than twenty (20) 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.
(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
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<PAGE>
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.
(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
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<PAGE>
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) If the Company shall fail to comply with the
provisions of this Article 7, the Company shall, in addition to any other
equitable or other relief available to the holders of Registrable Securities, be
liable for any or all incidental, special and consequential damages sustained by
the holders of Registrable Securities, requesting registration of their
Registrable Securities.
(h) 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
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<PAGE>
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.
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
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<PAGE>
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.
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,
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<PAGE>
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
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<PAGE>
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.
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
-17-
<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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
(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
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<PAGE>
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:
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<PAGE>
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company;
or
(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
__________, 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
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<PAGE>
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 _________, 2009.
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.
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<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:
_____________________________
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<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, _________, 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 _______, 2000 until 5:00 P.M. New York City time
on ________, 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 $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 ____________, 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.
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
<PAGE>
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.
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>
BY-LAW NO. I
A by-law relating generally to the
transaction of the business and affairs of
CAREERBRIDGE CORPORATION
(herein called the "Corporation")
CONTENTS
One Interpretation
Two Business of the Corporation
Three Directors
Four Committees
Five Officers
Six Protection of Directors, Officers and Others
Seven Shares
Eight Dividends and Rights
Nine Meetings of Shareholders
Ten Divisions and Departments
Eleven Notices
Twelve Effective Date
BE IT ENACTED as a by-law of the Corporation as follows:
Section One
INTERPRETATION
1.01 Definitions. In this by-law, unless the context otherwise requires:
"Act" means the Canada Business Corporations Act, and any statute that may
be substituted therefor, as from time to time amended;
"appoint" includes "elect" and vice versa;
<PAGE>
"Articles" means the articles attached to the certificate of incorporation,
of the Corporation as from time to time amended or restated;
"Board" means the board of directors of the Corporation;
"By-laws" means this by-law and all other by-laws of the Corporation from
time to time in force and effect:
"meeting of shareholders" includes an annual meeting of shareholders and a
special meeting of shareholders;
"special meeting of shareholders" means a special meeting of all
shareholders entitled to vote at an annual meeting of shareholders;
"non-business day" means Saturday, Sunday and any other day that is a
holiday as defined in the Interpretation Act (Canada);
"recorded address" means in the case of a shareholder his address as
recorded in the shareholders register as maintained by the Corporation; and
in the case of joint shareholders the address appearing in the shareholders
register in respect of such joint holding or the first address so appearing
if there are more than one; and in the case of a director, officer, auditor
or member of a committee of the Board, his latest address as recorded in
the records of the Corporation;
"signing officer" means, in relation to any instrument, any person
authorized to sign the same on behalf of the Corporation as the Board may
by resolution determine from time to time; and
"unanimous shareholder agreement" means a written agreement among all the
shareholders of the Corporation, or among all such shareholders and a
person who is not a shareholder, that restricts, in whole or in part, the
powers of the directors to manage the business and affairs of the
Corporation, as from time to time amended.
1.02
Interpretation. Save as aforesaid, words and expressions defined in the Act
have the same meanings when used herein; and words importing the singular number
include the plural and vice versa; words importing gender include the masculine,
feminine and neuter genders; and words importing persons include individuals,
bodies corporate, partnerships, trusts and unincorporated organizations.
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Section Two
BUSINESS OF THE CORPORATION
2.01
REGISTERED OFFICE. The registered office of the Corporation shall be in the
place within Canada specified in its Articles. The Board may from time to time
change the address of the registered office within the place specified in the
Articles.
2.02
FINANCIAL YEAR. The financial year of the Corporation shall be determined from
time to time by resolution of the Board.
2.03
EXECUTION OF INSTRUMENTS. Deeds, transfers, assignments, contracts, obligations,
certificates and other instruments may be signed on behalf of the Corporation by
such signing officers as the Board may by resolution determine from time to
time. Any signing officer may affix the corporate seal to any instrument
requiring the same.
2.04
BANKING ARRANGEMENTS. The banking business of the Corporation including, without
limitation, the borrowing of money and the giving of security therefor, shall be
transacted with such banks, trust companies or other bodies corporate or
organizations as may from time to time be designated by or under the authority
of the Board. Such banking business or any part thereof shall be transacted
under such agreements, instructions and delegations of powers as the Board may
from time to time prescribe or authorize.
2.05
VOTING RIGHTS IN OTHER BODIES CORPORATE. The signing officers of the Corporation
may execute and deliver proxies and arrange for the issuance of voting
certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments,
certificates or other evidence shall be in favour of such person or persons as
may be determined by the officers executing such proxies or arranging for the
issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In addition, the Board may from time to time direct the
manner in which and the person or persons by whom any particular voting rights
or class of voting rights may or shall be exercised.
2.06
WITHHOLDING INFORMATION FROM SHAREHOLDERS. Subject to the provisions of the Act,
no shareholder shall be entitled to discovery of any information respecting any
details or conduct of the Corporation's business which, in the opinion of the
Board, it would be inexpedient in the interests of the shareholders or the
Corporation to communicate to the public. The Board may from time to time
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determine whether and to what extent and at what time and place and under what
conditions or regulations the accounts, records and documents of the Corporation
or any of them shall be open to the inspection of shareholders and no
shareholder shall have any right of inspecting any account, record or document
of the Corporation except as conferred by the Act or authorized by the Board or
by resolution passed at a general meeting of shareholders.
Section Three
DIRECTORS
3.01
NUMBER OF DIRECTORS. Unless the number of directors on the Board is fixed in the
Articles, and until changed in accordance with the Act, the Board shall consist
of not fewer than the minimum number and not more than the maximum number of
directors provided in the Articles.
3.02
QUORUM. Subject to section 3.09, the quorum for the transaction of business at
any meeting of the Board shall consist of a majority of the number of directors
in office immediately following the last election or appointment of directors by
the shareholders.
3.03
QUALIFICATION. No person shall be qualified for election as a director if he
is less than eighteen (18) years of age; if he is of unsound mind and has been
so found by a court in Canada or elsewhere; if he is not an individual; or if he
has the status of a bankrupt. A director need not be a shareholder. A majority
of the directors shall be resident Canadians.
3.04
ELECTION AND TERM. The election of directors shall take place at the first
meeting of shareholders and at each annual meeting of shareholders and all the
directors then in office shall retire but, if qualified, shall be eligible for
reelection. The number of directors to be elected at any such meeting shall be
the number of directors then in office unless the directors or the shareholders
otherwise determine. The election shall be by resolution. If an election of
directors is not held at the proper time, the incumbent directors shall continue
in office until their successors are elected.
3.05
REMOVAL OF DIRECTORS. Subject to the provisions of the Act, the shareholders may
by resolution passed at a special meeting remove any director from office and
the vacancy created by such removal may be filled at the same meeting failing
which it may be filled by the directors.
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3.06
VACATION OF OFFICE. A director ceases to hold office when he dies; he is removed
from office by the shareholders; he ceases to be qualified for election as a
director; or his written resignation is sent or delivered to the Corporation, or
if a time is specified in such resignation, at the time so specified, whichever
is later.
3.07
VACANCIES. Subject to the Act, a quorum of the Board may fill a vacancy in the
Board, except a vacancy resulting from an increase in the minimum number of
directors or from a failure of the shareholders to elect the minimum number of
directors. In the absence of a quorum of the Board, or if the vacancy has arisen
from a failure of the shareholders to elect the minimum number of directors, the
Board shall forthwith call a special meeting of shareholders to fill the
vacancy. If the Board fails to call such meeting or if there are no such
directors then in office, any shareholder may call the meeting.
3.08
ACTION BY THE BOARD. Subject to any unanimous shareholder agreement, the Board
shall manage the business and affairs of the Corporation. Subject to sections
3.09 and 3. 10, the powers of the Board may be exercised by resolution passed at
a meeting at which a quorum is present or by resolution in writing signed by all
the directors entitled to vote on that resolution at a meeting of the Board.
Where there is a vacancy in the Board, the remaining directors may exercise all
the powers of the Board so long as a quorum remains in office. Where the
Corporation has only one director, that director may constitute the meeting.
3.09
CANADIAN MAJORITY. The Board shall not transact business at a meeting, other
than filling a vacancy in the Board, unless a majority of the directors present
are resident Canadians, except where:
(a) a resident Canadian director who is unable to be present approves in writing
or by telephone or other communications facilities the business transacted
at the meeting; and
(b) a majority of resident Canadians would have been present had that director
been present at the meeting.
3.10
MEETINGS BY TELEPHONE. If all the directors consent, a director may participate
in a meeting of the Board or of a committee of the Board by means of such
telephone or other communications facilities as permit all persons participating
in the meeting to hear each other, and a director participating in such a
meeting by such means is deemed to be present at the meeting. Any such consent
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shall be effective whether given before or after the meeting to which it relates
and may be given with respect to all meetings of the Board and of committees of
the Board held while a director holds office.
3.11
PLACE OF MEETINGS. Meetings of the Board may be held at any place in or outside
Canada.
3.12
CALLING OF MEETINGS. Meetings of the Board shall be held from time to time and
at such place as the Board, the chairman of the board, the managing director,
the president or any two directors may determine.
3.13
NOTICE OF MEETING. Notice of the time and place of each meeting of the Board
shall be given in the manner provided in section 1 1. 0 1 to each director not
less than forty-eight (48) hours before the time when the meeting is to be held.
A notice of a meeting of directors need not specify the purpose of or the
business to be transacted at the meeting except where the Act requires such
purpose or business to be specified, including any proposal to:
(a) submit to the shareholders any question or matter requiring approval of the
shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities, except in the manner and on the terms authorized by the
Board;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve a take-over bid circular or directors' circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
A director may in any manner waive notice of or otherwise consent to a meeting
of the Board.
3.14
FIRST MEETING OF NEW BOARD. Provided a quorum of directors is present, each
newly elected Board may without notice hold its first meeting immediately
following the meeting of shareholders at which such Board is elected.
3.15
ADJOURNED MEETING. Notice of an adjourned meeting of the Board is not required
if the time and place of the adjourned meeting is announced at the original
meeting.
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3.16
REGULAR MEETINGS. The Board may appoint a day or days in any month or months for
regular meetings of the Board at a place and hour to be named. A copy of any
resolution of the Board fixing the place and time of such regular meetings shall
be sent to each director forthwith after being passed, but no other notice shall
be required for any such regular meeting except where the Act requires the
purpose thereof or the business to be transacted thereat to be specified.
3.17
CHAIRMAN. The chairman of any meeting of the Board shall be the first mentioned
of such of the following officers as have been appointed and who is a director
and is present at the meeting: chairman of the board, managing director,
president, or a vice-president. If no such officer is present, the directors
present shall choose one of their number to be chairman of the meeting.
3.18
VOTES TO GOVERN. At all meetings of the Board every question shall be decided by
a majority of the votes cast on the question. In case of an equality of votes
the chairman of the meeting shall be entitled to a second or casting vote.
3.19
CONFLICT OF INTEREST. A director or officer who is a party to, or who is a
director or officer of or has a material interest in any person who is a party
to, a material contract or proposed material contract with the Corporation shall
disclose the nature and extent of his interest at the time and in the manner
provided by the Act. Any such contract or proposed contract shall be referred to
the Board or shareholders for approval even if such contract is one that in the
ordinary course of the Corporation's business would not require approval by the
Board or shareholders, and a director interested in a contract so referred to
the Board shall not vote on any resolution to approve the same except as
provided by the Act.
3.20
REMUNERATION AND EXPENSES. Subject to any unanimous shareholder agreement, the
directors shall be paid such remuneration for their services as the Board may
from time to time determine. The directors shall also be entitled to be
reimbursed for travelling and other expenses properly incurred by them in
attending meetings of the Board or any committee thereof. Nothing herein
contained shall preclude any director from serving the Corporation in any other
capacity and receiving remuneration therefor.
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Section Four
COMMITTEES
4.01
COMMITTEE OF DIRECTORS. The Board may appoint a committee of directors, however
designated, and delegate to such committee any of the powers of the Board except
those which, under the Act, a committee of directors has no authority to
exercise. A majority of the members of such committee shall be resident
Canadians.
4.02
TRANSACTION OF BUSINESS. The powers of a committee of directors may be exercised
by a meeting at which a quorum is present or by resolution in writing signed by
all the members of such committee who would have been entitled to vote on that
resolution at a meeting of the committee or in the manner described in section
3.10. Meetings of such committee may be held at any place in or outside Canada.
4.03
ADVISORY COMMITTEES. The Board may from time to time appoint such other
committees as it may deem advisable, but the functions of any such other
committees shall be advisory only.
4.04
PROCEDURE. Unless otherwise determined by the Board, each committee shall have
the power to fix its quorum at not less than a majority of its members, to elect
its chairman and to regulate its procedure.
Section Five
OFFICERS
5.01
APPOINTMENT. Subject to any unanimous shareholder agreement, the Board may from
time to time appoint a chairman of the board, president, one or more
vice-presidents (to which title may be added words indicating seniority or
function), a secretary, a treasurer and such other officers as the Board may
determine, including one or more assistants to any of the officers so appointed.
The Board may specify the duties of and, in accordance with this by-law and
subject to the provisions of the Act, delegate to such officers powers to manage
the business and affairs of the Corporation. Subject to section 5.02 and 5.03,
an officer may but need not be a director and one person may hold more than one
office.
5.02
CHAIR OF THE BOARD. The Board may from time to time appoint a chairman of the
board who shall be a director. If appointed, the Board may assign to him any of
the powers and duties that are by any provisions of this by-law assigned to the
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president; and he shall, subject to the provisions of the Act, the Articles or
any unanimous shareholder agreement, have such other powers and duties as the
Board may specify. During the absence or disability of the chairman of the
board, his duties shall be performed and his powers exercised by the president.
5.03
MANAGING DIRECTOR. The Board may from time to time appoint a managing director
who shall be a resident Canadian and a director. If appointed, he may be the
chief executive officer and, subject to the authority of the Board, shall have
general supervision of the business and affairs of the Corporation; and he
shall, subject to the provisions of the Act or the Articles, have such other
powers and duties as the Board may specify. During the absence or disability of
the president, or if no president has been appointed, the managing director
shall also have the powers and duties of that office.
5.04
PRESIDENT. If appointed, the president shall be the chief operating officer and,
subject to the authority of the Board and of the managing director, if any,
shall have general supervision of the business of the Corporation; and he shall
have such other powers and duties as the Board may specify. During the absence
or disability of the chairman of the board, or if no chairman of the board has
been appointed, the president shall also have the powers and duties of that
office.
5.05
VICE-PRESIDENT. A vice-president shall have such powers and duties as the Board
or the president may specify.
5.06
SECRETARY. The secretary shall attend and be the secretary of all meetings of
the Board, shareholders and committees of the Board and shall enter or cause to
be entered in records kept for that purpose minutes of all proceedings thereat;
he shall give or cause to be given, as and when instructed, all notices to
shareholders, directors, officers, auditors and members of committees of the
Board; he shall be the custodian of the corporate seal of the Corporation and of
all books, papers, records, documents and instruments belonging to the
Corporation, except when some other officer or agent has been appointed for that
purpose; and he shall have such other powers and duties as the Board or the
president may specify.
5.07
TREASURER. The treasurer shall keep proper accounting records in compliance with
the Act and shall be responsible for the deposit of money, the safekeeping of
securities and the disbursement of funds of the Corporation; he shall render to
the Board whenever required an account of all his transactions as treasurer and
of the financial position of the Corporation; and he shall have such other
powers and duties as the Board or the president may specify.
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5.08
POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other officers
shall be such as the terms of their engagement call for or as the Board or the
president may specify. Any of the powers and duties of an officer to whom an
assistant has been appointed may be exercised and performed by such assistant
unless the Board or the president otherwise directs.
5.09
VARIATION OF POWERS AND DUTIES. The Board may from time to time and subject to
the provisions of the Act, vary, add to or limit the powers and duties of any
officer.
5.10
TERM OF OFFICE. The Board, in its discretion, may remove any officer of the
Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise each officer appointed by the Board shall hold office until
his successor is appointed or his written resignation is sent or delivered to
the Corporation, or if a time is specified in such resignation, at the time so
specified, whichever is later.
5.11
TERMS OF EMPLOYMENT AND REMUNERATION. The terms of employment and the
remuneration of officers appointed by the Board shall be settled by it from time
to time.
5.12
CONFLICT OF INTEREST. An officer shall disclose his interest in any material
contract or proposed material contract with the Corporation in accordance with
section 3.19.
5.13
AGENTS AND ATTORNEYS. The Board shall have power from time to time to appoint
agents or attorneys for the Corporation in or outside Canada with such powers of
management or otherwise (including the power to sub-delegate) as may be thought
fit.
5.14
FIDELITY BONDS. The Board may require such officers, employees and agents of the
Corporation as the Board deems advisable to furnish bonds for the faithful
discharge of their powers and duties, in such form and with such surety as the
Board may from time to time determine.
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Section Six
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.01
LIMITATION OF LIABILITY. No director or officer shall be liable for the acts,
receipts, neglects or defaults of any other director or officer or employee, or
for joining in any receipt or other act for conformity, or for any loss, damage
or expense happening to the Corporation through the insufficiency or deficiency
of title to any property acquired for or on behalf of the Corporation, or for
the insufficiency or deficiency of any security in or upon which any of the
moneys of the Corporation shall be invested, or for any loss or damage arising
from the bankruptcy, insolvency or tortious acts of any person with whom any of
the moneys, securities or effects of the Corporation shall be deposited, or for
any loss occasioned by any error of judgment or oversight on his part, or for
any other loss, damage or misfortune whatever which shall happen in the
execution of the duties of his office or in relation thereto, unless the same
are occasioned by his own wilful neglect or default; provided that nothing
herein shall relieve any director or officer from the duty to act in accordance
with the Act and the regulations thereunder or from liability for any breach
thereof.
6.02
INDEMNITY. Subject to the limitations contained in the Act, the Corporation
shall indemnify a director or officer, a former director or officer, or a person
who acts or acted at the Corporation's request as a director or officer of a
body corporate of which the Corporation is or was a shareholder or creditor (or
a person who undertakes or has undertaken any liability on behalf of the
Corporation or any such body corporate) and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of the Corporation
or such body corporate, if:
(a) he acted honestly and in good faith with a view to the best interests of the
Corporation; 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 that
his conduct was lawful.
6.03
INSURANCE. Subject to the limitations contained in the Act, the Corporation may
purchase and maintain such insurance for the benefit of its directors and
officers as such, as the Board may from time to time determine.
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Section Seven
SHARES
7.01
ALLOTMENT. The Board may from time to time allot or grant options to purchase
the whole or any part of the authorized and unissued shares of the Corporation
at such times and to such persons and for such consideration as the Board shall
determine, provided that no share shall be issued until it is fully paid as
prescribed by the Act.
7.02
COMMISSIONS. The Board may from time to time authorize the Corporation to pay a
commission to any person in consideration of his purchasing or agreeing to
purchase shares of the Corporation, whether from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
7.03
REGISTRATION OF TRANSFER. Subject to the provisions of the Act, no transfer of
shares shall be registered in a shareholders register except upon presentation
of the certificate representing such shares with a transfer endorsed thereon or
delivered therewith duly executed by the registered holder or by his attorney or
successor duly appointed, together with such reasonable assurance or evidence of
signature, identification and authority to transfer as the Board may from time
to time prescribe, upon payment of all applicable taxes and any fees prescribed
by the Board, upon compliance with such restrictions on transfer as are
authorized by the Articles and upon satisfaction of any lien referred to in
section 7.05.
7.04
TRANSFER AGENTS AND REGISTRARS. The Board may from time to time appoint a
registrar to maintain the shareholders register and a transfer agent to maintain
the register of transfers and may also appoint one or more branch registrars to
maintain branch shareholders registers and one or more branch transfer agents to
maintain branch registers of transfers, but one person may be appointed both
registrar and transfer agent. The Board may at any time terminate any such
appointment.
7.05
LIEN FOR INDEBTEDNESS. If the Articles provide that the Corporation shall have a
lien on shares registered in the name of a shareholder indebted to the
Corporation, the Corporation may sell, in such manner as the Board thinks fit,
any shares on which the Corporation has such a lien, but no sale shall be made
unless some sum in respect of which the lien exists is presently payable, nor
until the expiration of fourteen (14) days after a notice in writing, stating
and demanding payment of such part of the amount in respect of which the lien
exists as is presently payable, has been given to the registered holder of the
share or the person entitled by reason of his death or bankruptcy.
Upon any sale made by the Corporation of any shares to satisfy its lien
thereon, the proceeds shall be applied as follows: first, in payment of all
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costs of such share; second, in satisfaction of the debts or obligations of the
shareholder (whether or not due), and the residue (if any) shall be paid to the
shareholder or as he shall direct.
Upon any such sale, the Board may enter the purchaser's name in the
register as the holder of the shares, and the purchaser is not bound to see to
the regularity or validity of the proceedings or to the application of the
purchase money; and he is not affected by any irregularity or invalidity in the
proceedings. After his name has been entered in the register, the validity of
the sale is not to be impeached by any person, and the remedy of any person
aggrieved by the same shall be in damages only and against the Corporation
exclusively.
7.06
NON-RECOGNITION OF TRUSTS. Subject to the provisions of the Act, the Corporation
shall treat as absolute owner of any share the person in whose name the share is
registered in the shareholders register as if that person had full legal
capacity and authority to exercise all rights of ownership, irrespective of any
indication to the contrary through knowledge or notice or description in the
Corporation's records or on the share certificate.
7.07
SHARE CERTIFICATE. Every holder of one or more shares of the Corporation shall
be entitled, at his option, to a share certificate, or to a nontransferable
written acknowledgment of his right to obtain a share certificate, stating the
number and class or series of shares held by him as shown on the shareholders
register. Share certificates and acknowledgments of a shareholder's right to a
share certificate, respectively, shall be in such form as the Board shall from
time to time approve. Any share certificate shall be signed by any two (2)
officers or directors and need not be under the corporate seal; provided that,
unless the Board otherwise determines, certificates representing shares in
respect of which a transfer agent and/or registrar has been appointed shall not
be valid unless countersigned by or on behalf of such transfer agent and/or
registrar. A share certificate shall be signed manually by at least one director
or officer of the Corporation or by or on behalf of the transfer agent and/or
registrar. Any additional signatures required may be printed or otherwise
mechanically reproduced. A share certificate executed as aforesaid shall be
valid notwithstanding that one or both of the officers whose facsimile signature
appears thereon no longer holds office at the date of issue of the certificate.
7.08
REPLACEMENT OF SHARE CERTIFICATES. The Board or any officer or agent designated
by the Board may in its or his discretion direct the issue of a new share
certificate in lieu of and upon cancellation of a share certificate that has
been mutilated or in substitution for a share certificate claimed to have been
lost, destroyed or wrongfully taken on such terms as to indemnity, reimbursement
of expenses and evidence of loss and of title as the Board may from time to time
prescribe, whether generally or in any particular case.
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7.09
JOINT SHAREHOLDERS. If two (2) or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
7.10
DECEASED SHAREHOLDERS. In the event of the death of a holder, or of one of
the joint holders, of any share, the Corporation shall not be required to make
any entry in the shareholders register in respect thereof or to make payment of
any dividends thereon except upon production of all such documents as may be
required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
Section Eight
DIVIDENDS AND RIGHTS
8.01
DIVIDENDS. Subject to the provisions of the Act, the Board may from time to
time declare dividends payable to the shareholders according to their respective
rights and interests in the Corporation. Dividends may be paid in money or
property or by issuing fully paid shares of the Corporation.
8.02
DIVIDEND CHEQUES. A dividend payable in cash shall be paid by cheque drawn on
the Corporation's bankers or one of them to the order of each registered holder
of shares of the class or series in respect of which it has been declared and
mailed by prepaid ordinary mail to such registered holder at his recorded
address, unless such holder otherwise directs. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be made payable to the
order of all of such joint holders and mailed to them at their recorded address.
The mailing of such cheque as aforesaid, unless the same is not paid on due
presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.
8.03
NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend cheque by
the person to whom it is sent as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount on such terms as to indemnity,
reimbursement of expenses and evidence of non-receipt and of title as the Board
may from time to time prescribe, whether generally or in any particular case.
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8.04
RECORD DATE FOR DIVIDENDS AND RIGHTS. The Board may fix in advance a date,
preceding by not more than fifty (50) days and not less than twenty-one (21)
days the date for the payment of any dividend or the date for the issue of any
warrant or other evidence of right to subscribe for securities of the
Corporation, as a record date for the determination of the persons entitled to
receive payment of such dividend or to exercise the right to subscribe for such
securities, provided that notice of any such record date is given, not less than
seven (7) days before such record date, by newspaper advertisement in the manner
provided in the Act. Where no record date is fixed in advance as aforesaid, the
record date for the determination of the persons entitled to receive payment of
any dividend or to exercise the right to subscribe for securities of the
Corporation shall be at the close of business on the day on which the resolution
relating to such dividend or right to subscribe is passed by the Board.
8.05
UNCLAIMED DIVIDENDS. Any dividend unclaimed after a period of six (6) years from
the date on which the same has been declared to be payable shall be forfeited
and shall revert to the Corporation.
Section Nine
MEETINGS OF SHAREHOLDERS
9.01
ANNUAL MEETINGS. The annual meetings of shareholders shall be held at such time
in each year and, subject to section 9.03, at such place as the Board, the
chairman of the board, the managing director or the president may from time to
time determine, for the purpose of considering the financial statements and
reports required by the Act to be placed before the annual meeting, electing
directors, appointing auditors and for the transaction of such other business as
may properly be brought before the meeting.
9.02
SPECIAL MEETINGS. The Board, the chairman of the board, the managing director or
the president shall have power to call a special meeting of shareholders at any
time.
9.03
PLACE OF MEETINGS. Meetings of shareholders shall be held at the registered
office of the Corporation or elsewhere in the municipality in which the
registered office is situate or, if the Board shall so determine, at some other
place in Canada or, if all the shareholders entitled to vote at the meeting so
agree, at some place outside Canada.
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9.04
NOTICE OF MEETINGS. Notice of the time and place of each meeting of shareholders
shall be given in the manner provided in section 1 1. 0 1 not less than
twenty-one (21) nor more than fifty (50) days before the date of the meeting to
each director, to the auditor and to each shareholder who at the close of
business on the record date, if any, for notice is entered in the shareholders
register as the holder of one or more shares carrying the right to vote at the
meeting. Notice of a meeting of shareholders called for any purpose other than
consideration of the financial statements and auditor's report, election of
directors and reappointment of the incumbent auditor shall state the nature of
such business in sufficient detail to permit the shareholder to form a reasoned
judgment thereon and shall state the text of any special resolution to be
submitted to the meeting. A shareholder and any other person entitled to attend
a meeting of shareholders may in any manner waive notice of or otherwise consent
to a meeting of shareholders.
9.05
LIST OF SHAREHOLDERS ENTITLED TO NOTICE. For every meeting of shareholders, the
Corporation shall prepare a list of shareholders entitled to receive notice of
the meeting, arranged in alphabetical order and showing the number of shares
entitled to vote at the meeting held by each shareholder. If a record date for
the meeting is fixed pursuant to section 9.06, the shareholders listed shall be
those registered at the close of business on a day not later than ten (10) days
after such record date. If no record date is fixed, the shareholders listed
shall be those registered at the close of business on the day immediately
preceding the day on which notice of the meeting is given, or where no such
notice is given, the day on which the meeting is held. The list shall be
available for examination by any shareholder during usual business hours at the
registered office of the Corporation or at the place where the shareholders
register is kept and at the place where the meeting is held.
9.06
RECORD DATE FOR NOTICE. The Board may fix in advance a record date, preceding
the date of any meeting of shareholders by not more than fifty (50) days and not
less than twenty-one (21) days, for the determination of the shareholders
entitled to notice of the meeting, provided that notice of any such record date
is given, not less than seven (7) days before such record date, by newspaper
advertisement in the manner provided in the Act. If no record date is so fixed,
the record date for the determination of the shareholders entitled to notice of
the meeting shall be the close of business on the day immediately preceding the
day on which the notice is given.
9.07
MEETINGS WITHOUT NOTICE. A meeting of shareholders may be held without notice at
any time and place permitted by the Act:
(a) if all the shareholders entitled to vote thereat are present in person or
represented by proxy or if those not present or represented by proxy waive
notice of or otherwise consent to such meeting being held; and
(b) if the auditors and the directors are present or waive notice of or
otherwise consent to such meeting being held.
16
<PAGE>
At such a meeting any business may be transacted which the Corporation at a
meeting of shareholders may transact. If the meeting is held at a place outside
Canada, shareholders not present or represented by proxy, but who have waived
notice of or otherwise consented to such meeting, shall also be deemed to have
consented to the meeting being held at such place.
9.08
CHAIRMAN, SECRETARY AND SCRUTINEERS. The chairman of any meeting of shareholders
shall be the first mentioned of such of the following officers as have been
appointed and who is present at the meeting: chairman of the board, managing
director, president, or a vice-president who is a shareholder. If no such
officer is present within fifteen (15) minutes from the time fixed for holding
the meeting, the persons present and entitled to vote shall choose one of their
number to be chairman of the meeting. If the secretary of the Corporation is
absent, the chairman of the meeting shall appoint some person, who need not be a
shareholder, to act as secretary of the meeting. If desired, one or more
scrutineers, who need not be shareholders, may be appointed by a resolution or
by the chairman of the meeting with the consent of the meeting.
9.09
PERSONS ENTITLED TO BE PRESENT. The only persons entitled to be present at a
meeting of the shareholders shall be those entitled to vote thereat, the
directors and auditors of the Corporation and others who, although not entitled
to vote, are entitled or required under any provision of the Act or the Articles
or bylaws to be present at the meeting. Any other person may be admitted only on
the invitation of the chairman of the meeting or with the consent of the
meeting.
9.10
QUORUM. A quorum for the transaction of business at any meeting of shareholders
shall be the holders of a majority of the shares entitled to vote at a meeting
of shareholders, whether present or represented by proxy.
9.11
ONLY ONE SHAREHOLDER. Where the Corporation has only one shareholder or only one
holder of any class or series of shares, the shareholder present in person or by
proxy constitutes a meeting.
9.12
RIGHT TO VOTE. Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders in
respect of which the Corporation has prepared the list referred to in section
9.05, every person who is named in such list shall be entitled to vote the
shares shown thereon opposite his name except, where the Corporation has fixed a
record date in respect of such meeting pursuant to section 9.06, to the extent
that such person has transferred any of his shares after such record date and
the transferee, upon producing properly endorsed certificates evidencing such
shares or otherwise establishing that he owns such shares, demands not later
than ten (10) days before the meeting that his name be included to vote the
transferred shares at the meeting. In the absence of a list prepared as
17
<PAGE>
aforesaid in respect of a meeting of shareholders, every person shall be
entitled to vote at the meeting who at the time is entered in the shareholders
register as the holder of one or more shares carrying the right to vote at such
meeting.
9.13
PROXIES. Every shareholder entitled to vote at a meeting of shareholders may
appoint a proxyholder, or one or more alternate proxyholders, who need not be
shareholders, to attend and act at the meeting in the manner and to the extent
authorized and with the authority conferred by the proxy. A proxy shall be in
writing executed by the shareholder or his attorney and shall conform with the
requirements of the Act.
9.14
TIME FOR DEPOSIT OF PROXIES. The Board may specify in a notice calling a meeting
of shareholders a time, preceding the time of such meeting by not more than
forty-eight (48) hours exclusive of non-business days, before which time proxies
to be used at such meeting must be deposited. A proxy shall be acted upon only
if, prior to the time so specified, it shall have been deposited with the
Corporation or an agent thereof specified in such notice or, if no such time is
specified in such notice, unless it has been received by the secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
9.15
JOINT SHAREHOLDERS. If two (2) or more persons hold shares jointly, any one of
them present in person or represented by proxy at a meeting of shareholders may,
in the absence of the other or others, vote the shares; but if two (2) or more
of those persons are present in person or represented by proxy and vote, they
shall vote as one on the shares jointly held by them.
9.16
VOTES TO GOVERN. At any meeting of shareholders every question shall, unless
otherwise required by the Articles or by-laws or by law, be determined by the
majority of the votes cast on the question. In case of an equality of votes
either upon a show of hands or upon a poll, the chairman of the meeting shall be
entitled to a second or casting vote.
9.17
SHOW OF HANDS. Subject to the provisions of the Act, any question at a meeting
of shareholders shall be decided by a show of hands unless a ballot thereon is
required or demanded as hereinafter provided. Upon a show of hands every person
who is present and entitled to vote shall have one vote. Whenever a vote by show
of hands shall have been taken upon a question, unless a ballot thereon is so
required or demanded, a declaration by the chairman of the meeting that the vote
upon the question has been carried or carried by a particular majority or not
carried and an entry to that effect in the minutes of the meeting shall be
priina facie evidence of the fact without proof of the number or proportion of
the votes recorded in favour of or against any resolution or other proceeding in
respect of the said question, and the result of the vote so taken shall be the
decision of the shareholders upon the said question.
18
<PAGE>
9.18
BALLOTS. On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, any
shareholder or proxyholder entitled to vote at the meeting may require or demand
a ballot. A ballot so required or demanded shall be taken in such manner as the
chairman of the meeting shall direct. A requirement or demand for a ballot may
be withdrawn at any time prior to the taking of the ballot. If a ballot is taken
each person present shall be entitled, in respect of the shares which he is
entitled to vote at the meeting upon the question, to that number of votes
provided by the Act or the Articles, and the result of the ballot so taken shall
be the decision of the shareholders upon the said question.
9.19
ADJOURNMENTS. If a meeting of shareholders is adjourned for less than thirty
(30) days, it shall not be necessary to give notice of the adjourned meeting,
other than by announcement at the earliest meeting that is adjourned. If a
meeting of shareholders is adjourned by one or more adjournments for an
aggregate of thirty (30) days or more, notice of the adjourned meeting shall be
given as for an original meeting.
9.20
RESOLUTION IN WRITING. A resolution in writing signed by all of the shareholders
entitled to vote on that resolution at a meeting of shareholders is as valid as
if it had been passed at a meeting of the shareholders unless a written
statement with respect to the subject matter of the resolution is submitted by a
director or the auditors in accordance with the Act.
Section Ten
DIVISIONS AND DEPARTMENTS
10.01
CREATION AND CONSOLIDATION OF DIVISIONS. The Board may cause the business and
operations of the Corporation or any part thereof to be divided or to be
segregated into one or more divisions upon such basis, including without
limitation, character or type of operation, geographical territory, product
manufactured or service rendered, as the Board may consider appropriate in each
case. The Board may also cause the business and operations of any such division
to be further divided into sub-units and the business and operations of any such
divisions or sub-units to be consolidated upon such basis as the Board may
consider appropriate in each case.
19
<PAGE>
10.02
NAME OF DIVISION. Any division or its sub-units may be designated by such name
as the Board may from time to time determine and may transact business, enter
into contracts, sign cheques and other documents of any kind and do all acts and
things under such name. Any such contract, cheque or document shall be binding
upon the Corporation as if it had been entered into or signed in the name of the
Corporation.
10.03
OFFICERS OF DIVISIONS - From time to time the Board, or if authorized by the
Board, the president, may appoint one or more officers for any division,
prescribe their powers and duties and settle their terms of employment and
remuneration. The Board or, if authorized by the Board, the president, may
remove at its or his pleasure any officer so appointed, without prejudice to
such officer's rights under any employment contract. Officers of divisions or
their sub-units shall not, as such, be officers of the Corporation.
Section Eleven
NOTICES
11.01
METHOD OF GIVING NOTICE. Any notice (which term includes any communication or
document) to be given (which term includes received, delivered or served)
pursuant to the Act, the regulations thereunder, the Articles, the by-laws or
otherwise to a shareholder, director, officer, auditor or member of a committee
of the Board shall be sufficiently given if served personally or if delivered to
his recorded address or if mailed to him at his recorded address by prepaid
ordinary or air mail or if sent to him at his recorded address by any means of
prepaid transmitted or recorded communication. A notice served personally or
delivered at the recorded address shall be deemed to have been given when it is
served personally or delivered to the recorded address as aforesaid; a notice
mailed as aforesaid shall be deemed to have been given on the fifth day after
having been deposited in a post office or public letter box; and a notice so
sent by any means of transmitted or recorded communication shall be deemed to
have been given when dispatched or if delivered to an appropriate communication
company or agency or its representative for dispatch, one day after such
delivery. The secretary may change or cause to be changed the recorded address
of any shareholder, director, officer, auditor or member of a committee of the
Board in accordance with any information believed by him to be reliable or in
the most recent notice filed pursuant to the Act, whichever is the more current.
11.02
NOTICE TO JOINT SHAREHOLDERS. If two (2) or more persons are registered as joint
holders of any share, any notice shall be addressed to all of such joint holders
but notice to one of such persons shall be sufficient notice to all of them.
20
<PAGE>
11.03
COMPUTATION OF TIME. In computing the date when notice must be given under any
provision requiring a specified number of days' notice of any meeting or other
event, the date of giving the notice shall be excluded and the date of the
meeting or other event shall be included.
11.04
UNDELIVERED NOTICES. If any notice given to a shareholder pursuant to section
11.01 is returned on three consecutive occasions because he cannot be found, the
Corporation shall not be required to give any further notices to such
shareholder until he informs the Corporation in writing of his new address.
11.05
OMISSIONS AND ERRORS. The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the Board or
the non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
11.06
PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Every person who, by operation of
law, transfer, death of a shareholder or any other means whatsoever, shall
become entitled to any share, shall be bound by every notice in respect of such
share which shall have been duly given to the shareholder from whom he derives
his title to such share prior to his name and address being entered on the
shareholders register (whether such notice was given before or after the
happening of the event upon which he became so entitled) and prior to his
furnishing to the Corporation the proof of authority or evidence of his
entitlement prescribed by the Act.
11.07
WAIVER OF NOTICE. Any shareholder (or his duly appointed proxyholder), director,
officer, auditor or member of a committee of the Board may at any time waive any
notice, or waive or abridge the time for any notice, required to be given to him
under any provisions of the Act, the regulations thereunder, the Articles, the
by-laws or otherwise and such waiver or abridgement shall cure any default in
the giving or in the time of such notice, as the case may be. Any such waiver or
abridgement shall be in writing except a waiver of notice of a meeting of
shareholders or of the Board which may be given in any manner.
21
<PAGE>
Section Twelve
EFFECTIVE DATE
12.01
EFFECTIVE DATE. This by-law shall come into force when confirmed by the
shareholders in accordance with the Act.
PASSED this 24th day of May, 1996.
President Secretary
22
<PAGE>
OPTION AGREEMENT
THIS AGREEMENT is dated as of the 24th day of June, 1999.
BETWEEN:
Sandy Bryden,
of 12 Allan Place in Ottawa in the province of Ontario
(hereinafter referred to as the "Optionee")
AND:
E-Cruiter.com Inc.,
a corporation incorporated under the laws of Canada
(hereinafter referred to as the "Optionor")
WHEREAS:
The Optionor desires to grant to the Optionee an Option to purchase Shares on
the terms and conditions set out herein.
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:
1. DEFINITIONS
In this Agreement and the recitals hereto, unless the context otherwise
requires, the following words and expressions shall have the following
meanings:
(a) "Agreement", "hereto", "herein", "hereof", "hereunder" and
similar expressions refer to this Option Agreement and not any
particular paragraph or any particular portion of this agreement;
(b) "Option" means the option granted to the Optionee under Section
2.1;
<PAGE>
(c) "Option Notice" means a notice given by the Optionee to the
Optionor indicating that the Optionee is exercising the Option in
whole or in part;
(d) "Option Price" means $ 0.50 per Optioned Share purchased by the
Optionee under this Agreement;
(e) "Optioned Shares" means 100,000 Shares;
(f) "Shares" means the Class D special shares of the Optionor as
currently constituted; and
(g) "Termination Date" means June 24, 2001 .
2. OPTION
2.1 The Optionor hereby grants to the Optionee an irrevocable
option (the "Option") to purchase the Optioned Shares at the
Option Price, subject to the terms and provisions of this
Agreement.
2.2 The Option may be exercised in whole or in part at any time
and from time to time up to and including the Termination Date
in respect of the Optioned Shares at the Option Price. The
Option may be exercised by the Optionee giving to the Optionor
an Option Notice accompanied by a certified cheque or bank
draft representing the Option Price in respect of the Optioned
Shares for which the Option is being exercised.
2.3 If the Shares are changed by way of being classified or
reclassified, subdivided, consolidated or converted into a
different number or class of shares or otherwise,
<PAGE>
or if the Optionor amalgamates, the Option Price and the type
of security to be delivered to the Optionee upon exercise of
the Option in whole or in part shall be adjusted
accordingly, in all cases so that the Optionee shall receive
the same number and type of securities as would have
resulted from such change if the Option or the remaining
part thereof had been exercised before the date of the
change.
2.4 The Optionor hereby represents and warrants that all necessary
corporate action has been taken to permit some or all of the
Optioned Shares to be validly issued to the Optionee and
recorded on the books of the Optionor in the name of the
Optionee or its nominee upon exercise of the Option in whole
or in part in accordance with the terms and conditions of this
Agreement.
2.5 The Optionor will, at all times prior to the Termination Date,
reserve and keep available such number of its Shares as will
be sufficient to satisfy the requirements of this Agreement.
2.6 The Optionor acknowledges that the grant of the Option and/or
the issue of Shares hereunder may be subject to regulatory
authority.
3. GENERAL
3.1 Sections and Headings
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and
shall not affect the construction or interpretation of this Agreement.
3.2 Time Periods
When calculating the period of time within which or following which any
act is to be done or step taken pursuant to this Agreement, the date
which is the reference date in calculating such period shall be
excluded.
<PAGE>
3.3 Extended Meanings
Words importing the singular number only shall include the plural and
vice versa and words importing gender shall include masculine, feminine
and neuter genders.
3.4 Canadian Dollars
Unless otherwise provided herein, all monetary amounts set forth in
this Agreement are in Canadian dollars.
3.5 Amendments and Waivers
No modification, variation, amendment or termination by mutual consent
of this Agreement and no waiver of the performance of any of the
responsibilities of any of the parties hereto shall be effected unless
such action is taken in writing and is signed by all parties. No
amendment to this Agreement shall be valid or binding unless set forth
in writing and duly executed by all of the parties hereto. No waiver of
any breach of any provision of this Agreement shall be effective or
binding unless made in writing and signed by the party purporting to
give the same and, unless otherwise provided in the written waiver,
shall be limited to the specific breach waived.
3.6 Severability
Each of the covenants, provisions, Articles, Sections, subsections and
other subdivisions hereof is severable from every other covenant,
provision, Article, Section, subsection and the invalidity or
unenforceability of any one or more covenants, provisions, Articles,
Sections, subsections or subdivisions of this Agreement shall not
affect the validity or enforceability of the remaining covenants,
provisions, Articles, Sections, subsections and subdivisions hereof.
3.7 Time of Essence
Time shall be of the essence of this Agreement.
<PAGE>
3.8 Notices
Any notice or other written communication required or permitted
hereunder shall be in writing and:
3.8.1 delivered personally to the party or, if the party is a
corporation, an officer of the party to whom it is directed;
3.8.2 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
3.8.3 sent by confirmed telecopier.
3.9 All such notices shall be addressed to the party to whom it is
directed at the following addresses:
if to : 12 Allan Place
by mail or personal delivery: Ottawa, ON
K2S 3T1
Attention: Sandy Bryden
if to : E-Cruiter.com Inc.
by mail or personal delivery: 360 Albert Street, Suite 1510
Ottawa, ON K1R 7X7
Attention: Jeff Potts
by facsimile: 613-236-1541
<PAGE>
Any such notice or other written communication shall, if
mailed as aforesaid be effective three (3) 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.
Either party may at any time change its address by giving
notice of such change of address to the other party in the
manner specified in this paragraph.
3.10 Enurement
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective personal representatives, heirs,
successors, executors, administrators and permitted assigns.
3.11 Assignment
Neither of the parties hereto may assign its rights or obligations
under this Agreement without the prior written consent of the other
party hereto.
3.12 Entire Agreement
This Agreement constitutes the entire agreement between the parties and
supersedes all prior and contemporaneous agreements, understandings and
discussions, whether oral or written, and there are no other
warranties, agreements or representations between the parties except as
expressly set forth herein.
3.13 Proper Law
This Agreement shall be governed by and interpreted in accordance with
the laws of the Province of Ontario, and the laws of Canada applicable
therein.
<PAGE>
3.14 Counterparts
This Agreement may be executed in several counterparts, each of which
together shall constitute one and the same instrument.
3.15 Facsimile
The parties hereto agree that this Agreement may be transmitted by
facsimile or such similar device and that the reproduction of
signatures by facsimile or such similar device will be treated as
binding as if originals and each party hereto undertakes to provide
each and every other party hereto with a copy of the Agreement bearing
original signature forthwith upon demand.
3.16 Further Assurances
The parties hereto shall do all further acts and things and execute all
further documents reasonably required in the circumstances to effect
the provisions and intent of this Agreement.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first set forth above.
SIGNED, SEALED AND DELIVERED
SANDY BRYDEN
______________________________________________
E-CRUITER.COM INC.
Per: _________________________________________
Title:
<PAGE>
THIS INDENTURE made as of the 1st day of August, 1999
BETWEEN:
871484 ONTARIO INC.
("the Assignor")
AND:
E-CRUITER.COM INC
("the Assignee")
AND:
OMERS REALTY CORPORATION
("the Landlord")
BACKGROUND
1. By a lease dated the 16th day of November, 1993 ("the Lease") the Landlord
leased certain premises ("the Premises") within the building municipally
known as 360 Albert Street, Ottawa, Ontario to Drake, Beam, Morin (Ottawa)
Inc. ("DBM").
2. DBM is now the Assignor.
3. The Assignor has agreed to sell and assign its interest in the Lease and in
the Premises to the Assignee.
ASSIGNMENT
4. In consideration of the sum of Ten Dollars ($10.00) now paid by the Assignee
to the Assignor (the receipt whereof is hereby acknowledged) and in
consideration of the Landlord granting its consent to the within assignment,
the Assignor does hereby grant and assign unto the Assignee all of its right
title and interest in the Lease and in the Premises and all benefit and
advantage to be derived therefrom.
5. The Assignor hereby covenants with the Assignee and Landlord that:
(i) notwithstanding any act of the Assignor, the Lease is a good, valid
and subsisting lease and that the rents thereby reserved have been
duly paid up to the 31st day of July, 1999 and the covenants and
conditions therein contained have been duly paid and performed by the
Assignor up to the day of the date hereof;
(ii) it has in its good right, full power and absolute authority to assign
the Lease in manner aforesaid, and according to the true intent and
meaning of this indenture;
(iii) subject to the payment of the said rent, and the lessee's covenants
and the conditions in the Lease, the Assignee may enter into and upon
and peaceably hold and enjoy the Premises for the residue of the term
granted by the Lease for its own use and benefit, without any
interruption of the Assignor or any other person whomsoever claiming
or to claim by, through or under it;
(iv) it shall and will from time to time and at all times hereinafter, at
the request and costs of the Assignee execute such further assurances
as the Assignee shall reasonably require; and
<PAGE>
(v) notwithstanding the within assignment, the Assignor shall continue to
be bound to the Landlord with respect to the tenant's obligations
under the Lease.
6. The Assignee covenants with the Assignor and the Landlord that:
(i) the Assignee shall and will from time to time during all the residue
of the term granted by the Lease and every renewal thereof, pay the
rent and perform the lessee's covenants, conditions and agreements
therein reserved and indemnify and save harmless the Assignor
therefrom and from all actions, suits, costs, losses, charges,
damages and expenses for or in respect thereof; and
(ii) in consideration of the Landlord giving its consent to the within
Assignment, hereby covenants with the Landlord that it shall observe
all of the covenants and conditions contained in the Lease as if the
Assignee had been a party to and had executed the Lease with the
Landlord.
7. The Landlord hereby consents to the assignment by the Assignor to the
Assignee of the Assignor's interest in the Lease.
8. This indenture and everything herein shall respectively enure to the benefit
of and be binding upon the parties hereto, their heirs, executors,
administrators and assigns respectively.
EXECUTION OF THIS SUPPLEMENT BY AGENT
9. The Assignor and Assignee acknowledge that OPQA Management I Inc. has the
authority to execute this Assignment for and on behalf of the Landlord.
IN WITNESS WHEREOF the parties hereto have hereunder set their hands and seals.
871484 ONTARIO INC.
Per:
------------------------------
Name: Gerry Stanton, President
I have authority to bind the corporation
E-CRUITER.COM INC
Per:
------------------------------
Name: Gerry Stanton, President
I have authority to bind the corporation
OMERS REALTY CORPORATION
BY ITS AUTHORIZED AGENT
OPQA MANAGEMENT I INC., without
personal liability
Per:
------------------------------
Name:
Per:
------------------------------
Name:
I/We have authority to bind the corporation.
<PAGE>
E-CRUITER.COM INC
KEY EMPLOYEE STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the E-Cruiter.com Inc Key Employee Stock Option Plan is to
develop the interest of and provide an incentive to eligible employees and
directors of E-Cruiter.com Inc (the "Corporation") in the Corporation's
growth and development by granting to eligible employees and directors from
time to time options to purchase Class "D" Special Shares of the
Corporation, thereby advancing the interests of the Corporation and its
shareholders.
2. Definitions
In this Plan:
a) "Board of Directors" means the Board of Directors of the Corporation;
b) "Class "D" Special Shares" means the Class "D" Special Shares of the
Corporation;
c) "Corporations Act" means the Canada Business Corporations Act, as
amended, and the regulations promulgated thereunder.
d) "Date of Grant" means, for any Option, the date specified by the Board of
Directors at the time it grants the Option, (provided, however, that such
date shall not be prior to the date the Board of Directors acts to grant
the Option) or, if no such date is specified, the date upon which the
Option was granted;
e) "Disability" means permanent and total disability as determined under
procedures established by the Board of Directors for the purposes of the
Plan;
f) "Exercise Date" means the date the Corporation receives from a
Participant a completed Notice of Exercise form with payment for the
Option Shares being purchased;
g) "Exercise Period" means, with respect to any Option Shares, the period
during which a Participant may purchase such Option Shares;
h) "Option" means a non-assignable and non-transferable option to purchase
Class "D" Special Shares granted pursuant to the Plan;
i) "Optionee" means a Participant who has been granted one or more Options;
1
<PAGE>
j) "Option Shares" means Class "D" Special Shares which are subject to
purchase upon the exercise of outstanding Options;
k) "Participant" means a current or former full-time permanent employee of
the Corporation;
l) "Plan" means the E-Cruiter.com Inc Key Employee Stock Option Plan as set
out herein;
m) "Plan Shares" means the Class "D" Special Shares reserved from time to
time by the Board of Directors for issuance pursuant to the exercise of
Options;
n) "Retirement" means retirement from active employment with the Corporation
at or after age 65, or with the consent for purposes of the Plan of such
officer of the Corporation as may be designated by the Board of
Directors, at or after such earlier age and upon the completion of such
years of service as the Board of Directors may specify; and
3. Canadian Dollars
All dollar amounts referred to in this Plan are in Canadian funds unless
otherwise provided.
4. Extended Meanings
In this Plan, words importing the singular number include the plural and
vice versa and words importing the masculine gender include the feminine and
neuter genders.
5. Headings
Article headings are not to be considered part of the Plan and are included
solely for convenience of reference and are not intended to be full or
accurate descriptions of the contents thereof.
6. Eligibility
All Participants shall be eligible to participate in the Plan. Eligibility
to participate shall not confer upon any Participant any right to be granted
Options pursuant to the Plan. The extent to which any Participant shall be
entitled to be granted Options pursuant to the Plan shall be determined in
the sole and absolute discretion of the Board of Directors.
7. Number of Option Shares Available for Grants
No Option may be granted by the Board of Directors which would have the
effect of causing the total number of all Option Shares subject to purchase
under outstanding Options to exceed the number of Plan Shares.
Upon the expiration, surrender, cancellation or termination, in whole or in
part, of an unexercised Option, the Option Shares subject to such Option
shall be available for other Options to be granted from time to time.
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8. Granting of Options
The Board of Directors may from time to time grant Options to Participants
to purchase a specified number of Option Shares at a specified exercise
price per share. The number of Option Shares to be granted, the exercise
price, the Date of Grant, and such other terms and conditions of the Option
shall be as determined by the Board of Directors.
9. Exercise Price
The exercise price per Class "D" Special Share purchasable under an Option
shall be determined by the Board of Directors but in any event shall not be
lower than the fair market value of a Class "D" Special Share on the Date of
Grant.
10. Exercise Period
Unless otherwise specified by the Board of Directors at the time of granting
an Option, and except as otherwise provided in the Plan, each Option shall
be exercisable in the following installments:
Percentage of Total Number
of Option Shares Which
May be Purchased Exercise Period
----------------------------- --------------------------------------
33 1/3% From the first anniversary of the Date
of Grant to and including the fifth
anniversary of the Date of Grant
33 1/3% From the second anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of
Grant
33 1/3% From the third anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of
Grant
Once an installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise specified by the
Broad of Directors. Each Option or installment may be exercised at any time
or from time to time, in whole or in part, for up to the total number of
Class "D" Special Shares with respect to which it is then exercisable. The
Board of Directors shall have the right to accelerate the date which any
installment of any Option is exercisable.
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11. Term of Options
Subject to accelerated termination as provided for in the Plan, each Option
shall, unless otherwise specified by the Board of Directors, expire on the
fifth anniversary of the Date of Grant, provided, however, that no Option
may be excercised after the tenth anniversary of the Date of Grant.
12. Exercise of Options
An Optionee may at any time within the Exercise Period elect to purchase all
or a portion of the Option Shares which such Optionee is then entitled to
purchase by delivering to the Corporation a completed Notice of Exercise,
specifying the Date of Grant of the Option being exercised, the exercise
price of the Option and the number of Option Shares the Optionee desires to
purchase. The Notice of Exercise shall be accompanied by payment in full of
the purchase price for such Option Shares. Payment can be made by cash,
certified cheque, bank draft, money order or the equivalent payable to the
order of the Corporation or by such other means as may be specified by the
Board of Directors.
13. Withholding of Tax
If the Corporation determines that under the requirements of applicable
taxation laws it is obliged to withhold for remittance to a taxing authority
any amount upon exercise of an Option, the Corporation may, prior to and as
a condition of issuing the Option Shares, require the Optionee exercising
the Option to pay to the Corporation, in addition to and in the same manner
as the purchase price for the Option Shares, such amount as the Corporation
is obliged to remit to such taxing authority in respect of the exercise of
the Option. Any such additional payment shall, in any event, be due no later
than the date as of which any amount with respect to the Option exercised
first becomes includable in the gross income of the Optionee for tax
purposes.
14. Share Certificates
Upon exercise of an Option and payment in full of the purchase price and any
applicable tax withholdings, the Corporation shall cause to be issued and
delivered to the Optionee within a reasonable period of time a certificate
or certificates in the name of or as directed by the Optionee representing
the number of Class "D" Special Shares the Optionee has purchased.
15. Termination of Employment
Unless otherwise determined by the Board of Directors, if an Optionee's
employment or services terminate for any reason other than death, Disability
or Retirement, any Option held by such Optionee shall thereupon terminate,
except that each such Option, to the extent then exercisable, may be
exercised for the lessor of 60 days or the balance of such Option's term.
Options shall not be affected by any change of employment within or among
the Corporation, its Subsidiaries or an Other Related Company, or unless
otherwise determined by the Board of Directors, so long as the Participant
continues to be an employee of the Corporation, a Subsidiary or an Other
Related Company.
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16. Termination by Reason of Death, Disability or Retirement
If an Optionee's employment or services terminate by reason of death,
Disability or Retirement, any Option held by such Optionee may thereafter be
exercised, to the extent then exercisable or to such other extent as the
Board of Directors may determine, for a period of 180 days (or such other
period as the Board of Directors may specify) from the date of such death,
Disability or Retirement or until the expiration of the stated term of such
Option, whichever period is the shorter.
17. Transfer and Assignment
Options granted under the Plan are not assignable or transferable by the
Optionee or subject to any other alienation, sale, pledge or encumbrance by
such Optionee except by will or by the laws of descent and distribution.
During the Optionee's lifetime Options shall be exercisable only by the
Optionee. The obligations of each Optionee shall be binding on his/her
heirs, executors and administrators.
18. No Right to Employment
The granting of an Option to a Participant under the Plan does not confer
upon the Participant any right to expectation of employment by, or to
continue in the employment of, the Corporation, or to be retained as a
consultant by the Corporation.
19. Rights as Shareholders
The Optionee shall not have any rights as a shareholder with respect to
Option Shares until full payment has been made to the Corporation and a
share certificate or share certificates have been duly issued.
20. Administration of the Plan
The Plan shall be administered by the Board of Directors which shall have
the authority to:
a) determine the individuals and entities (from among the class of
individuals and entities eligible to receive Options) to whom Options may
be granted;
b) determine the number of Option Shares to be subject to each Option;
c) determine the terms and conditions of any grant of Option, including but
not limited to
d) the time or times at which Options may be granted;
e) the exercise price at which Option Shares subject to each Option may be
purchased;
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f) the time or times when each Option shall be come exercisable and the
duration of the Exercise Period;
g) whether restrictions or limitations are to be imposed on Option Shares,
and the nature of such restrictions or limitations, if any; and
h) any acceleration of exercisability or waiver of termination regarding any
Option, based on such factors as the Board of Directors may determine;
i) interpret the Plan and prescribe and rescind rules and regulations
relating to the Plan.
The interpretation and construction by the Board of Directors of any
provisions of the Plan or of any Option granted under it shall be final and
binding on all persons. No members of the Board of Directors shall be liable
for any action or determination made in good faith with respect to the Plan
or any Option granted under it. The day-to-day administration of the Plan
may be delegated to such officers and employees of the Corporation or any
Subsidiary as the Board of Directors shall determine.
21. Recapitalization and Reorganization
The number of Option Shares subject to each outstanding Option and the
purchase price for such Option Shares shall be appropriately adjusted for
any subdivision, redivision, consolidation or any similar change affecting
the Class "D" Special Shares.
22. Conditions
The Plan and each Option shall be subject to the requirement that, if at any
time the Board of Directors determines that the listing, registration or
qualification of the Class "D" Special Shares subject to such Option upon
any securities exchange or under any provincial, state or federal law, or
the consent or approval of any governmental body, securities exchange, or
the holders of the Class "D" Special Shares generally, is necessary or
desirable, as a condition of, or in connection with, the granting of such
Option or the issue or purchase of Class "D" Special Shares thereunder, no
such Option may be granted or exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
affected or obtained free of any conditions not acceptable to the Board of
Directors.
23. Loans
The Board of Directors may, in its discretion, but subject always to section
44 of the Corporations Act, grant loans, on such terms as are permitted by
law and the Board of Directors may determine, to Optionees to enable them to
purchase Option Shares, provided that all Class "D" Special Shares purchased
with the proceeds of such loans shall be held by a trustee until the
Corporation has been repaid in full.
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24. Notices
All written notices to be given by the Optionee to the Corporation shall be
delivered personally or by registered mail, postage prepaid, addressed as
follows:
E-Cruiter.com Inc
360 Albert Street, Suite 1510
Ottawa, ON K1R 7X7
Attention: Secretary - Treasurer
Any notice given by the Optionee pursuant to the terms of an Option shall
not be effective until actually received by the Corporation at the above
address.
25. Corporate Action
Nothing contained in the Plan or in an Option shall be construed so as to
prevent the Corporation from taking corporate action which is deemed by the
Corporation to be appropriate or in its best interest, whether or not such
action would have an adverse effect on the Plan or any Option.
26. Amendments
The Board of Directors shall have the right, in its sole discretion, to
alter, amend, modify or terminate the Plan or any Option granted under the
Plan at any time without notice. The Board of Directors shall not, however,
alter, amend or modify the Plan more often than once every six months other
than to comport with changes to applicable tax and employee benefit laws and
the respective rules and regulations thereunder. No such amendment, however,
may, without the consent of the Optionee, alter or impair any rights or
increase any obligations with respect to an Option previously granted under
the Plan.
27. Third Party Offer
In the event of a Third Party Offer which is accepted by a majority of the
shareholders of the Corporation as defined below, unless otherwise
determined by the Board of Directors prior to the occurrence of such Third
Party Offer, any options outstanding as of the date of the Third Party Offer
and then not exercisable shall become fully exercisable at the Exercise
Price, provided that Optionees are not required to exercise the options if
the Third Party Offer is not for all the Corporation's securities or the
offer price per share is less than the Exercise Price.
For the purposes of the Plan, "Third Party Offer" means the happening of any
of the following:
a) When a third party, acting at arm's length, as defined in the Income Tax
Act (Canada), as amended, makes an offer to acquire the "beneficial
ownership", as defined in the Corporations Act, directly or indirectly, of
securities of the Corporation representing 50.1 percent or more of the
combined voting power of the Corporation's then outstanding securities; or
b) When a third party, acting at arm's length, as defined in the Income Tax
Act (Canada), as amended, makes an offer to acquire the Corporation through
the purchase of assets, by amalgamation or otherwise.
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"Exercise Price" shall mean the price per share as determined herein from
time to time.
28. Termination of Plan
Except as otherwise provided herein, Options may be granted only within the
ten year period from the date the Plan has been adopted by the Board of
Directors. The termination of the Plan shall have no effect on outstanding
Options, which shall continue in effects in accordance with their terms and
conditions and the terms and conditions of the Plan, provided that no Option
may be exercised after the tenth anniversary of its Date of Grant.
29. Further Assurances
Each Participant shall, when requested to do so by the Corporation, sign and
deliver all such documents relating to the granting or exercise of Options
deemed necessary or desirable by the Corporation.
30. Governing Law
The Plan is established under the laws of the Province of Ontario, and the
rights of all parties and the construction and effect of each provision of
the Plan shall be according to the laws of the Province of Ontario.
DATED this 30th day of October, 1998.
E-CRUITER.COM INC
President _______________________
J. Gerard Stanton
Secretary _______________________
J. Potts
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SUBSIDIARIES OF E-CRUITER.COM INC.
1. 3451615 Canada Inc. (formerly E-Cruiting Software Inc.), incorporated
under the laws of Canada.
2. E-Cruiter.com USA Inc., incorporated under the laws of the State of
Delaware.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to us under the heading "Experts" in the
Registration Statement (Form F-1) and related Prospectus of E-Cruiter.com Inc.
PricewaterhouseCoopers LLP
Ottawa, Canada Chartered Accountants
September 22, 1999
