SUBJECT TO COMPLETION, DATED OCTOBER 22, 1999
REGISTRATION NO.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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E-XACT TRANSACTIONS LTD.
(Exact name of small business issuer as specified in its charter)
COLORADO 7232 APPLIED FOR
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization)Classification Code Number)(Identification Number)
1610-555 WEST HASTINGS STREET 1610-555 WEST HASTINGS STREET CT CORPORATION
VANCOUVER, BRITISH COLUMBIA VANCOUVER, BRITISH COLUMBIA 1209 ORANGE STREET
CANADA V6H 4N6 CANADA V6H 4N6 WILMINGTON, DELAWARE
(604) 691-1670 (604) 691-1670 19801 USA
(Address and telephone number (Address of principal place (302))658-7581
of principal executive offices) of business) (Name, address and
telephone number of
agent for service)
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Copies to:
LESTER R. WOODWARD, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET, SUITE 4700
DENVER, COLORADO 80202
(303) 892-9400
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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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, check the following box. |X|
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 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 earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Share(1/ Aggregate Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share... 4,804,500 $ 1.00 $4,804,500 $1,335
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</TABLE>
/1/Estimated solely for the purpose of calculating the registration fee, based
upon the expected price at which the shares of common stock, $.001 par value,
are to be offered.
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>
EXPLANATORY NOTE
This registration statement covers (a) the primary public offering by
E-xact of 1,725,000 shares (the "Public Shares") of common stock, $.001 par
value, (b) 75,000 shares paid to the placement agent, Canaccord, as a corporate
finance fee, (c) 172,500 shares underlying a warrant paid to Canaccord in
consideration of Canaccord's commitment to sell all of the shares in the
offering, and (d) the concurrent offering on a delayed basis of 2,832,000 shares
of common stock by certain selling stockholders of E-xact. The primary
prospectus (the "Company Prospectus") covers the Public Shares being offered by
E-xact. An alternate prospectus (the "Selling Stockholders Prospectus") will be
used by the Selling Stockholders in connection with an offering by them for
their accounts of up to 2,832,000 shares of common stock held by such Selling
Stockholders. The Selling Stockholders Prospectus is identical to the Company
Prospectus, except for (1) alternate front and back cover pages, which alternate
cover pages are noted in the registration statement, (2) the sections entitled
"Summary," "Use of Proceeds," "Plan of Distribution" and "Risk Factors" which
alternate sections are indicated in the registration statement, and (3) the
sections entitled "Determination of Offering Price" and "Dilution" which
sections shall appear only in the Company Prospectus.
EXCHANGE RATES
All dollar amounts herein are stated in U.S. dollars except where
otherwise indicated. The following table reflects the rate of exchange for
Canadian dollars per U.S. $1.00 in effect at the end of the following periods
and the average rate of exchange during such periods, based on the Bank of
Canada average noon spot rate of exchange:
6 Months Ended Year Ended
June 30, 1999 December 31, 1998
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Rate at end of period: $1.4630 $1.5333
Average rate for period: $1.4691 $1.4831
<PAGE>
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER 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 OCTOBER 22, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
1,725,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
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E-xact Transactions Ltd. is a software development company that offers a
simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer software allows computer controlled cash registers, personal computers,
personal computer based point-of-sale terminals, computer systems, and
proprietary product platforms to accept credit card payments and submit those
payments to processing centers for authorization and settlement.
Canaccord Capital Corporation, E-xact's agent, has entered into a firm
commitment agreement to sell all of the stock in this public offering at a price
of $1.00 per share, for aggregate gross proceeds of $1,725,000.
E-xact has filed an application to list its common stock on the facilities
of the Vancouver Stock Exchange.
UNDERWRITTEN BY:
CANACCORD CAPITAL CORPORATION
Total Per Share
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Public Offering Price $ 1,725,000 $ 1.00
Underwriter Commissions* $ 129,375 $ 0.075
Proceeds $ 1,595,625 $ 0.925
E-xact has paid Canaccord a sponsorship fee of $10,000, an administrative
fee of Cdn. $4,000 and granted to Canaccord a warrant entitling it to
purchase shares of common stock in the future. E-xact also will pay
Canaccord a corporate finance fee of 75,000 shares of common stock.
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THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED AT PAGES 2 TO 7.
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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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY......................................................................1
RISK FACTORS.................................................................2
DILUTION.....................................................................8
USE OF PROCEEDS..............................................................9
DESCRIPTION OF E-XACT.......................................................10
DESCRIPTION OF BUSINESS.....................................................10
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................25
DESCRIPTION OF SECURITIES...................................................28
PLAN OF DISTRIBUTION........................................................31
DIRECTORS AND SENIOR OFFICERS...............................................33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................35
EXECUTIVE COMPENSATION......................................................36
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS..................37
DIVIDEND RECORD AND POLICY..................................................37
EXPERTS.....................................................................37
LEGAL MATTERS...............................................................37
WHERE YOU CAN FIND MORE INFORMATION.........................................38
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SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To better
understand the offering, you should read this entire document and the documents
we have referred you to. See "Where You Can Find More Information." Unless
otherwise indicated, all dollar amounts are expressed in U.S. dollars.
E-XACT: E-xact was incorporated under the laws of the Province of
British Columbia on August 13, 1998. On July 22, 1999 E-xact
filed a Certificate of Domestication and Certificate of
Incorporation with the Secretary of State of the State of
Delaware, thereby "domesticating" or transitioning from a
Canadian company to one organized under the laws of the
State of Delaware. The authorized share capital of E-xact
consists of 50,000,000 shares of common stock with a par
value of $.001 per share.
BUSINESS OF E-XACT: E-xact is a software development company that offers a
simple electronic commerce, also known as "e-commerce,"
solution for real- time transaction processing combined with
a suite of value added merchant services. E-xact's software
allows computer controlled cash registers, personal
computers, personal computer based point-of-sale terminals,
computer systems and proprietary product platforms to accept
credit card payments and submit those payments to payment
processing centers for authorization and settlement.
OFFERING: The offering consists of 1,725,000 shares of common stock to
be offered to the public. Upon completion of the offering,
there will be approximately 7,777,000 shares of common stock
issued and outstanding. In addition:
o E-xact has granted stock options pursuant to which up
to ____ shares may be issued in the future.
o E-xact has granted warrants pursuant to which up to
847,500 shares may be issued in the future.
USE OF PROCEEDS: The gross proceeds from this offering will be $1,725,000.
From these proceeds, E-xact will pay an aggregate commission
of $129,375 to Canaccord. After deducting the commission and
prior to the payment of expenses, the net proceeds from this
offering will be $1,595,625. E-xact's working capital as of
September 30, 1999 was approximately $25,200. The net
proceeds from the offering plus the working capital totals
approximately $1,620,825 before expenses, and will be used
to further E-xact's business objectives outlined in the
"Description of Business" section of this Prospectus.
<PAGE>
RISK FACTORS
An investment in E-xact common stock involves certain risks. Prospective
investors should carefully consider the following risk factors, in addition to
all of the other information in this Prospectus, in determining whether to
purchase shares of E-xact stock.
WE CANNOT BE SURE THAT SUFFICIENT WORKING CAPITAL WILL BE AVAILABLE TO COVER
NECESSARY EXPENSES
Since inception E-xact has financed its operations primarily through the
private placement of equity securities, stockholder loans, and minimal sales
from its e-commerce products. From inception, E-xact has raised approximately
$840,517 in net proceeds from private equity financing.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. The timing and amount of such spending is difficult
to predict accurately and will depend upon several factors, including the
progress of research and development efforts and competing technological and
market developments, commercialization of products currently under development
and market acceptance and demand for E-xact's products. E-xact currently
estimates that it will be necessary to spend approximately $1,287,000 for the
twelve months ending November 2000. There can be no assurance that cash flow
from operations, together with working capital and net proceeds from this
offering will be sufficient to fully fund the planned expansion of E-xact's
operations. If necessary, E-xact may seek additional funds through equity or
debt financing, through collaborative or other arrangements with other companies
and from other sources. If additional funds are raised by issuing equity
securities, further dilution to shareholders could occur. There can be no
assurance that additional financing will be available when needed or on terms
acceptable to E-xact. If adequate funds are not available, E-xact could be
required to delay development or commercialization of new products, to license
to third parties the rights to commercialize certain products or technologies
that E-xact would otherwise seek to commercialize for itself or to reduce the
marketing, customer support or other resources devoted to certain of its
products, each of which could have a material adverse effect on E-xact's
business, financial condition and results of operations.
WE HAVE A LIMITED OPERATING AND SALES HISTORY
E-xact has a limited history of operations that has consisted primarily of
research and development and initial sales of its e-commerce products and
services. E-xact has generated only limited revenues from sales of its
e-commerce products and services and does not have experience in manufacturing,
selling or marketing its products in large, commercial quantities. E-xact's
products and services have not gained significant market exposure or
demonstrable market acceptance yet. Whether E-xact can successfully manage the
transition to a larger-scale commercial enterprise will depend upon a number of
factors, including expanding its sales and marketing capabilities. Given the
absence of clear market acceptance with respect to this line of products, there
can be no assurance as to the achievability of projected market penetration
rates and associated sales revenues.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET
E-xact's products compete against those of other established companies,
some of which have greater financial, marketing and other resources than those
of E-xact. These competitors may be able to institute and sustain price wars, or
imitate the features of E-xact's products, resulting in a reduction of E-xact's
share of
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the market and reduced price levels and profit margins. In addition, there are
no significant barriers to new competitors entering the market place.
WE RELY ON KEY PERSONNEL
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has not entered into employment agreements with anyone other than Ted Henderson,
but anticipates executing such agreements with all key personnel by the end of
1999. E-xact anticipates that the agreements to be entered into with key
personnel will include non-competition provisions that extend for twelve months
following the employee's termination and non-disclosure provisions that extend
three years following the employee's termination. The employment agreement with
Ted Henderson extends from September 16, 1999 to September 15, 2000.
Competition for such personnel is intense, and there can be no assurance
that E-xact can retain its key technical and managerial personnel or that it can
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future. The loss of key personnel, especially if without
advance notice, or the inability to hire or retain qualified personnel could
have a material adverse effect upon E-xact's business, financial condition and
results of operations.
WE MUST DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH TECHNOLOGICAL
CHANGES
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. E-xact's future success will depend in large part on E-xact's
ability to continue to respond to such changes. There can be no assurance that
E-xact will be able to respond to such changes or that new or improved competing
products will not be developed that render E-xact's software products and
e-commerce services non-competitive. Product research and development will
require substantial expenditures and will be subject to inherent risks and there
can be no assurance that E-xact will successfully develop or improve products
that have the characteristics necessary to effectively meet the market's needs,
or that any new products introduced will be successfully commercialized.
E-xact's products may face competition from, or be rendered obsolete by, new
products that have yet to be launched.
RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. E-xact relies on third party
encryption technology to provide the security necessary to transmit confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
will not result in a compromise of breach of the encryption technology used by
E-xact to protect customer transaction data. If any such compromise of E-xact's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition and operating results.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
E-xact has only limited experience selling and marketing its e-commerce
products and services, and does not have any experience selling and marketing
its products in commercial quantities.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Year 2000 ("Y2K") computer problem refers to the potential for system
and processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
E-xact's e-commerce products and services are being developed to be fully
Y2K compliant, although the effectiveness of present efforts to address the Y2K
issue cannot be assured. In addition, E-xact intends to implement programs to
ensure that all software and hardware used in connection with the design of its
software products and the provision of services to its customers and suppliers
and its internal operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality.
E-xact does not anticipate incurring significant additional costs to address the
Year 2000 issue, although the effectiveness of its present efforts to address
the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by the end of October 1999 at a total cost of Cdn. $5,000 to Cdn.
$7,000. E-xact has not yet sought information from third parties, including
their customers and suppliers, with respect to their compliance with the Y2K
issue with respect to their own computer software and hardware. If the present
efforts to address the Y2K issue are unsuccessful, or if other third parties
with which E-xact conducts business do not successfully address the Y2K issue,
the business and financial condition of E-xact could be adversely affected.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISK OF THIRD PARTY CLAIMS
OF INFRINGEMENT
The patent, trademark, copyright and trade secret positions of e-commerce
companies, including those of E-xact, are uncertain and involve complex and
evolving legal and factual questions. The coverage sought in a patent
application either can be denied or significantly reduced before or after the
patent is issued. Consequently, there can be no assurance that any patents from
any future patent application will be issued, that the scope of the patent
protection will exclude competitors or provide competitive advantages to E-xact,
that any of E-xact's patents will be held valid if subsequently challenged or
that others will not claim rights in or ownership of the patents and other
proprietary rights held by E-xact. In addition, there can be no assurance that
competitors, many of which have substantial resources, will not seek to apply
for and obtain patents that will prevent, limit or interfere with E-xact's
ability to make, use or sell its products and services either in Canada, the
United States or in international markets. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to E-xact, may also be
necessary to enforce patent or other intellectual property rights of E-xact or
to determine the scope and validity of other parties' proprietary rights. There
can be no assurance that E-xact will have the financial resources to defend its
patents, trademarks and copyrights from infringement or claims of invalidity.
E-xact also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
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<PAGE>
gain access to or disclose E-xact's proprietary technology or that E-xact can
meaningfully protect its rights in such unpatented proprietary technology.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
E-xact's business involves the risk of product liability claims. Although
E-xact has not experienced any product liability claims to date, any such claims
could have a material adverse effect on E-xact. E-xact does not currently
maintain product liability insurance. E-xact intends to obtain such insurance
but there can be no assurance that it would be available on commercially
acceptable terms, or at all. Even if E-xact obtains product liability insurance,
there can be no assurance that it would prove adequate or that a product
liability claim, insured or uninsured, would not have a material adverse effect
on E-xact's business, financial condition and results of operations. Even if a
product liability claim is not successful, the time and expense of defending
against such a claim may adversely affect E-xact's business, financial condition
and results of operations.
TRANSACTION PROCESSING VOLUME RISK
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications may run efficiently in
low volume transaction processing environments but slow down or cease to operate
in high volume environments or during peak hours of use. E-xact's future success
will depend in large part on whether E-xact's software solutions will adequately
respond to such high volume transaction processing environments in a reliable
and efficient manner. There can be no assurance that E-xact software solutions
will be able to process large transaction volumes in a seamless manner. Product
research and development will require substantial expenditures and will be
subject to inherent risks and there can be no assurance that E-xact will be
successful in developing or improving products that have the characteristics
necessary to effectively meet the high volume transaction processing market.
MANAGEMENT WILL HAVE DISCRETION TO ALLOCATE THE OFFERING PROCEEDS
Of the $1,595,625 net proceeds ($1,393,125 after offering costs) from the
offering (based upon an assumed initial public offering price of $1.00 per
share), 100% of the funds will be used by E-xact to fund day to day operations.
The forecast expenses for the next twelve months (to November 2000) are expected
to be approximately $1,287,000 and the proceeds of the offering will be used to
bridge cash flow until net operating profits can fund the operations of E-xact.
If E-xact cannot gain broader customer acceptance in the e-commerce market, or
if E-xact's pricing model must change significantly due to competing forces in
e-commerce transaction processing, this could adversely affect E-xact's
business, financial condition and results of operations. In addition, the
amounts allocated for specific uses may vary significantly depending on numerous
factors, including the costs and timing of expansion of sales and marketing and
development activities. Accordingly, E-xact's management will retain broad
discretion in the allocation of the net proceeds which discretion will only be
exercised for sound business reasons.
OUR STOCK HAS NEVER BEEN PUBLICLY TRADED; POSSIBLE VOLATILITY OF STOCK; DILUTION
Prior to the offering, there has been no public market for E-xact's common
stock, and there can be no assurance that an active trading market will develop
and be sustained upon the completion of the offering, or that the market price
of the shares will not decline below the initial public offering price. The
initial public offering price of the shares has been determined by negotiations
between E-xact and Canaccord. As such, the
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<PAGE>
initial public offering price is not necessarily related to E-xact's net worth
or any other established criteria of value and may not bear any relationship to
the market price of the shares following the completion of the offering. The
market prices for securities of e-commerce software and services companies have
historically been highly volatile. Announcements of technological innovations or
new products by E-xact or its competitors, developments concerning proprietary
rights, including patents and litigation matters, and changes in financial
estimates by securities analysts or failure of E-xact to meet such estimates and
other factors may have a significant impact on the market price of the shares.
In addition, E-xact believes that fluctuations in its operating results may
cause the market price of its shares to fluctuate, perhaps substantially.
REVENUE PROJECTIONS
Revenue growth projections of E-xact are not yet supported by sales
contracts or by firm sales opportunities. There is no assurance that E-xact will
be able to achieve competitive pricing for its planned products or a significant
volume of sales.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY EXPERIENCE
FURTHER DILUTION
The initial public offering price of the common stock in this offering
will be substantially higher than the net tangible book value per share of the
common stock immediately after this offering. Therefore, if you purchase shares
of common stock in this offering, you will incur immediate and substantial
dilution of $0.70 per share in the net tangible book value per share of common
stock from the price you paid, assuming an initial public offering price of
$1.00 per share.
THE PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK
The initial public offering price of E-xact's common stock on the
Vancouver Stock Exchange of $1.00 per share was arrived at arbitrarily by
negotiation between E-xact and Canaccord, and represents their independent
assessment of the value of the shares being offered. As such, the initial public
offering price is not necessarily related to E-xact's net worth or any other
established criteria of value and may not bear any relationship to the market
price of the shares following the completion of the offering.
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES
Because shares of E-xact common stock will not be quoted on a national
securities exchange in the United States, the shares will be subject to rules
adopted by the U.S. Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny stocks." Such rules require
that prior to effecting any transaction in a penny stock, a broker or dealer
must give the customer a risk disclosure document that describes various risks
associated with an investment in penny stocks, as well as various costs and fees
associated with such an investment. It is possible that some brokers may be
unwilling to engage in transactions of shares of E-xact common stock because of
these added disclosure requirements, which would make it more difficult for a
purchaser in this offering to sell his shares.
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LISTING THE STOCK ON THE VANCOUVER STOCK EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on the
Vancouver Stock Exchange and will be primarily traded on that Exchange.] The
rules of the Vancouver Stock Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Exchange listing does not assure a stockholder that there will be a
purchaser for this shares when the stockholder wishes to sell.
THE POTENTIAL SUPPLY OF MARKETABLE SHARES FOR IMMEDIATE SALE MAY ADVERSELY
IMPACT THE MARKET PRICE OF THE SHARES
Concurrently with the registration of the shares offered under this
prospectus, E-xact has registered under the U.S. securities laws approximately
1,954,000 shares of its common stock that are presently owned by the
shareholders. All of those shares were initially purchased by the shareholders
in private transactions between September 1998 and October 1999. Although some
of these shares are subject to restrictions on their sale for periods of time
specified by the Vancouver Stock Exchange, it is anticipated that approximately
776,000 of these shares, in addition to those offered in the public offering
would be immediately available for sale to the public, thus adding to the supply
of shares in the market. If a significant portion of those shares are offered
for sale within a short period of time, the price of the shares in the market
would likely decline. If the supply substantially exceeds the demand, it might
become impossible to find buyers for all the shares that are being offered,
which would likely further depress the price and, perhaps, make it impossible
for you to sell all of your shares as quickly as you may desire.
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DILUTION
The following sets forth the dilution per share (as of June 30, 1999)
after giving effect to this offering:
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Effective price of Common Shares offered hereunder: $1.00
Net tangible book value before the offering:(1) 0.11
Increase in net tangible book value attributable to the offering: 0.19
Net tangible book value after the offering: 0.30 0.30
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Dilution to investor:(2) 0.70
Dilution to investor (as a percentage): 70%
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(1)This table gives effect to the issuance of an aggregate of 1,552,000 shares
of common stock at $0.50 per share on October 14, 1999.
(2)This table does not give effect to the proposed exercise by Bolder Venture
Partners, LLC of outstanding warrants to purchase up to 675,000 shares of
common stock, the possible exercise of a warrant to purchase up to 172,500
shares held by Canaccord Capital Corporation, and 75,000 shares of common
stock issued to Canaccord Capital Corporation as a corporate finance fee. The
issuance of these shares would have a less than a $0.01 per share effect on
the dilution calculated above.
E-xact issued one share each to Sutton Group Financial Services, Ltd. and
DataDirect Holdings, Inc. upon incorporation. Shortly thereafter, E-xact issued
ninety-nine shares to each of Sutton Group Financial Services Ltd. and
DataDirect Holdings Inc. in consideration of those two entities transferring to
E-xact their respective interests in a computer software system designed by
DataDirect. These shares were subject to a 21000:1 share split effective
September 2, 1999, yielding an effective price per share of Cdn. $0.25 per
share.
There are currently outstanding stock options pursuant to which ___ shares
may be issued in the future and warrants pursuant to which 847,500 shares may be
issued at prices ranging from $0.50 to a price per share to be determined by a
follow-on private placement. If all such options and warrants are exercised
after completion of this offering, then there would be a total of approximately
____ shares issued and outstanding.
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USE OF PROCEEDS
The gross proceeds from this offering will be $1,725,000. From these
proceeds, E-xact will pay an aggregate commission of $129,375 to Canaccord.
After deducting the commission and prior to expenses of the offering, the net
proceeds from this offering will be $1,595,625. E-xact's working capital, as of
September 30, 1999 was approximately $25,200.(1) The gross proceeds from the
offering plus the working capital totals approximately $1,750,200 (the "Funds
Available") which will be used as follows:
Funds Available: $1,750,200
==========
Proposed Uses:
Costs of this Offering: $ 202,500
---------
Consultants $ 26,100
Legal Fees $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
Agent's Commission $ 129,375
Capital Expenditures to Accommodate Staff Increases
and to Extend Network Capabilities: $ 208,000
Management and Staff Recruitment, Hiring and Contracting:
Management and Administration: $ 302,000
Marketing and Sales: $ 143,000
Technical Development: $ 525,000
Marketing: $ 109,000
---------
Working Capital at September 30, 1999 to Fund Ongoing
Operations and Unallocated Working Capital $ 131,325
---------
$1,750,200
=========
(1)Proceeds of $453,500 representing consideration for subscriptions for 907,000
shares of E-xact common stock were received as of September 30, 1999 and have
been included in the calculation of working capital. Subsequent to period
end, on October 14, 1999, the private placement of a total of 1,552,000
shares of E-xact common stock was completed.
E-xact will spend the funds available to it upon completion of this
offering to further E-xact's business objectives set out in "Description of
Business."
The use of proceeds described above represents E-xact's best estimate of
its allocation of the Funds Available based upon the current state of its
business operations, its current plans and current economic and industry
conditions. There may be circumstances where, for sound business reasons, a
reallocation of funds may be necessary in order for E-xact to achieve its
business objectives.
If Canaccord exercises its warrant to purchase up to 172,500 shares at a
price of $1.00 per share, E-xact will receive additional proceeds of up to
$172,500 if exercised at any time up to one year from the Listing Date. If
Canaccord exercises the warrant, the proceeds will also be added to E-xact's
working capital.
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DESCRIPTION OF E-XACT
E-xact was incorporated under the laws of the Province of British Columbia
on August 13, 1998. On July 29, 1999 E-xact filed a Certificate of Domestication
and Certificate of Incorporation with the Secretary of State of the State of
Delaware, thereby "domesticating" or transitioning from a Canadian company to
one organized under the laws of the State of Delaware.
E-xact's principal office is located at 1610 - 555 West Hastings Street,
Vancouver, British Columbia, V6H 4N6 Canada. E-xact's registered agent in the
U.S. is located at 1209 Orange Street, Wilmington, Delaware 19801 USA. E-xact
has no subsidiaries.
DESCRIPTION OF BUSINESS
INTRODUCTION
E-xact offers a simple electronic commerce, known as "e-commerce,"
solution for real-time transaction processing which allows PC based cash
registers, PCs, point-of-sale terminals, computer systems and proprietary
product platforms to accept credit card payments and submit those payments to
various payment processing companies for authorization and settlement/deposit
E-xact has developed software and a network system to act as a third party
payment processor to conduct transaction processing with all major banks in
North America. E-xact is currently approved to conduct transaction processing
with all major banks and credit unions in Canada and has recently opened a
gateway with Vital Processing Services, a U.S.-based credit card processing
network, allowing E-xact to process financial transactions with many of the
major banks in the U.S.
E-xact was founded in 1998, initially as a joint venture between the
Sutton Group Financial Services Ltd. and DataDirect Holdings Inc. On September
1, 1998, each of Sutton Group and DataDirect transferred to E-xact their
respective interests in a computer software system designed by DataDirect, known
as the Transaction Software and Processing System, in exchange for ninety-nine
shares of common stock of E-xact each. The software system offered to real time
credit card transaction processing capabilities for other e-commerce providers.
Version 2.0 provided the ability to move transactional data between
E-xact's system and the Royal Bank of Canada, the largest bank in Canada in
terms of assets and the only financial institution with which it was certified
to process financial transactions at the time. Throughout the autumn of 1998,
E-xact focused on further testing of its system and on designing the system to
easily grow to serve thousands or tens of thousands of customers. Testing was
undertaken with six clients, each focused on a different type of application,
including an Internet based storefront, a physical point-of-sale location, a
telephone based voice response system and a billing system. In January 1999,
E-xact received certification from Shared Network Systems, a firm that processes
financial transactions for most other banks and credit unions in Canada.
Version 3.0 of E-xact's transaction processing component was released in
January 1999. The software allowed other computers to speak to E-xact's
computers. Following this release, E-xact introduced versions for various
computer operating systems including LINUX, UNIX and JAVA.
In June 1999, E-xact released version 4.0 of its software system and it
also established its Internet Web site. Version 4.0 focused on providing
transaction processing, reporting and support services for
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e-commerce merchants. Since that time, E-xact has gained some fifty additional
clients and has begun to develop its marketing plan. E-xact is currently seeking
additional staff qualified to design and build specific technologies to create
additional sales opportunities in the North American transaction processing
arena.
OVERVIEW OF OPERATIONS
Due to the exponential growth of the Internet and e-commerce during the
past few years, the initial target of E-xact's marketing will be focused
primarily towards companies conducting business over the Internet. E-xact can
process transactions in US and Canadian dollars through credit card merchant
accounts for Visa, MasterCard, American Express, Discover, Diners Club, and JCB.
The system is secured by sophisticated encryption technology in addition to the
existing industry standard electronic security such as firewalls. In addition to
the Web-based transaction processing, E-xact also offers transaction processing
via other networks, such as interactive voice response systems. Interactive
voice response makes it possible for people to communicate with a computer using
their touch tone phone. Such a system not only "listens" to a request, it is
also capable of responding without human intervention.
As of the date of this Prospectus, E-xact has released multiple versions
of the software to run on various operating systems. The software does not
require a lengthy installation or integration process; users need only enable
the software within their computer operating environment. Once activated,
merchants are ready to start accepting customer credit cards, provided they have
established a merchant account with a bank for funds settlement.
E-xact also provides merchants a variety of reports with the transaction
processing system, such as a full suite of accounting tools that help customers
manage their e-commerce activities such as detailed billing statements,
transaction search engine, Web point of sale terminals and reporting services.
In order to leverage its marketing efforts, E-xact offers its e-commerce
transaction processing solution to internet service providers, Web developers,
application developers and financial institutions, which E-xact refers to as
"Partners." E-xact's Partners may receive a percentage of every transaction fee
processed by shared customers and may use E-xact's comprehensive web tools and
services for the benefit of such Partner's clients or e-merchants. The Partner
may apply its own corporate look and branding to these tools and effectively
promote its own brand using E-xact's products and services. E-xact is in the
process of developing a marketing strategy to complement its technical
development plan.
A key advantage of E-xact's transaction processing software is that it is
small (only 300KB) and can easily be integrated with most existing systems.
Additionally, E-xact provides the interface to match a customer's existing
operations rather than requiring them to meet and design their systems to
E-xact's pre-defined protocols, something most major competitors require.
E-xact currently operates with a core group of eight individuals, four of
whom comprise the management team. Mr. Ted Henderson is the President and Chief
Executive Officer, and has over sixteen years of experience in a variety of high
tech sectors. Mr. Peter Fahlman is a founder of E-xact and its Vice President of
Business Development. He has an extensive background in developing and
implementing computer-based solutions. Mr. Robert Roker is a computer
professional with over 10 years experience designing and implementing
financial-based information technology and is the Product Manager. Mr. Brian
Archer is the head of the Development Team. Mr. Archer's computer experience
began in 1981 and he has been involved in many aspects of development and
support.
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THE PRODUCTS
Product/Service Description
E-xact's product/service is a combination of an online service and a suite
of software that act as a real-time payment mechanism for e-commerce, either
over the Internet or via a wide range of other electronic networks.
How the System Works Utilizing the Internet
When a customer makes a purchase using a credit card on the Web site of a
merchant whose e-commerce system incorporates E-xact's transaction component,
the payment information is first sent securely in encrypted format to a secure
computer server. A firewall exists between the Internet and Web
servers/transaction servers to safeguard against any unauthorized intruders.
The encrypted payment information is then sent through another, much more
extensive firewall to E-xact's Gateway Server, from which it is sent onward to
the banking network to be approved or declined. Once approved or declined, the
information is returned back securely to the Web site where only the customer
can see the results. The information regarding each transaction is also
forwarded from E-xact's Gateway Server to a database to be logged as part of an
audit trail. The entire process takes place almost instantaneously, typically in
two to five seconds.
E-xact Transaction Software and Processing System
The current processing system is version 4.0, which was released in June
1999. It is a combination of custom software applications and processes that run
on the Windows NT Server 4.0 operating system. The primary function of these
applications/processes is to perform real-time credit card transaction
processing through certified links with the Royal Bank and Shared Network
Systems.
E-xact's system has five components:
1. Gateway Server
2. Transaction Server
3. Remote Transaction Component
4. Audit Database
5. Secure Web-based Merchant Tools
THE GATEWAY SERVER facilitates real-time credit card processing with any
of the major chartered banks and credit unions in Canada. It currently
participates directly with the Royal Bank Merchant Host Network, and also
communicates electronically with the Shared Network Systems network. Through
E-xact's certified connection with Shared Network Systems, the Gateway Server
can process transactions to account holders from any of the major banks in
Canada. The Vital Processing System enables the Gateway Server to process
transactions with many of the banks in the United States.
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THE TRANSACTION SERVER communicates with the Gateway Server and also
provides communications to the Remote Transaction Component. The Transaction
Server resides within E-xact's network and is accessible on the Internet via the
Remote Transaction Component.
THE REMOTE TRANSACTION COMPONENT is a custom software component that can
be installed/integrated in various computer environments to enable credit card
transaction processing on E-xact's network. Merchants can download this
component from E-xact's web site at WWW.E-XACT.COM in any of four formats,
depending upon which operating system the merchant uses.
Once installed on the user's system, the Remote Transaction Component will
connect via the Internet to E-xact's Transaction Server and subsequently the
Gateway Server and the financial networks. E-xact requires that merchants have a
specific electronic security system known as Secure Socket Layer protocol
operational on their site to provide the security necessary to conduct
transactions securely via the Internet. Encryption is also part of the
component, ensuring that all transmissions between itself and the Transaction
Server are safe from other users on the Internet. The current version of the
Remote Transaction Component processes transactions to all the major Canadian
banks and many of the banks in the United States.
THE AUDIT DATABASE incorporates the added functionality of processing with
the additional Canadian Chartered banks. Specific enhancements are under
development to meet the requirements of processing with VITAL Processing
Services in the United States. Every transaction is processed by the Gateway and
logged to the Audit Database to create an audit trail.
THE SECURE WEB BASED MERCHANT TOOLS are a group of reporting, auditing,
searching and processing functions available to merchants who have the proper
access credentials for E-xact's system. The system can be accessed through any
popular Web browser and data is delivered almost instantly. Added functionality
is available through specific tools such as the Web based point-of-sale terminal
where merchants can process credit card transactions directly to their merchant
account from anywhere on the Internet. Through E-xact's member services on the
Web site, merchants can track every sale for up to three years, check statements
for totals, deposits made and customer spending, among other functions. Security
systems limit access to this information to the merchant authorized for each
account.
Dedicated Transaction Servers
For merchants that require a transaction server that is only used by them,
E-xact can provide a dedicated server to centralize all financially based
transactions within a single organization. The servers allow for local auditing
and reporting of all transactions conducted through the specific server. Using
the Internet (or other communications medium), the merchant can interact
directly with E-xact's Gateway Server for a comprehensive electronic transaction
processing solution, including complete maintenance and audit capabilities.
Non-Web Based Transactions
E-xact also works with clients to integrate transaction processing
services with telephone-based electronic funds transfer and billing services
that do not utilize the Internet. Typically, these systems are closed networks
that do not require the level of additional firewall security as is required for
Internet transactions which can be accessed by anyone in the world. The systems
E-xact has developed can be applied to virtually any type of electronic network.
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Financial Transaction Processing Certification
Certification with transaction processing networks that handle the
financial transactions that E-xact's product/service is designed for is an
integral and necessary part of E-xact being able to offer its services. Banking
and other financial networks operate under stringent regulation which requires
that their computer networks be highly secured in order to protect privacy and
to ensure the integrity of the network. Accordingly, any company that wants to
offer a service that would access an existing banking or financial network must
undergo a comprehensive process of review and testing prior to being approved to
access to the network. Before an applicant company is permitted to go through
this review, the bank or processing system must be satisfied that the company is
capable of handling mission critical processes meeting its requirements, and
that its system will operate correctly and securely.
STAGE OF DEVELOPMENT AND COSTS
E-xact's current Transaction Software and Processing System has been in
full operation since June of 1999. The system is fully operational and
approximately 4,000 transactions are processed per day through E-xact's systems.
Since September 1, 1998, E-xact has processed over 600,000 transactions.
Cdn. $217,145 has been spent on product development as of June 30, 1999.
Of this amount Cdn. $152,628 has been expensed by E-xact and primarily includes
fees paid to programmers. On September 1, 1998, each of Sutton Group and
DataDirect transferred to E-xact their respective interests in a computer
software system designed by DataDirect, known as the Transaction Software and
Processing System, in exchange for ninety-nine shares of E-xact common stock
each. The consideration paid to Sutton Group for its interest in the Software
System, representing costs incurred by Sutton Group in the development of the
Software System, consisted of ninety-nine common shares issued at a deemed
aggregate value of Cdn. $32,515. The consideration paid to DataDirect for its
interest in the Software System consisted of ninety-nine common shares, issued
at a deemed aggregate value of Cdn. $32,000.
DEVELOPMENT PLANS
E-xact intends to continue to upgrade and enhance its combined systems and
software focusing on the following key areas.
Further development of the fraud protection and risk assessment aspects of
the system enabling merchants to more securely process online credit cards with
the aid of automated tools to lower the merchant's risk in accepting credit
cards online. Although E-xact's system contains a basic fraud engine, these
additional tools would address issues such as:
o excessive frequency of credit card use;
o over-purchasing limits;
o purchasing from unauthorized locations; and
o fake credit card number generators.
In addition, E-xact is assessing and analyzing the inbound sign-up process
and plans to develop a more streamlined and automated procedure to help
merchants sign-up and engage its services. Specific
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design of a fully automated online sign-up site allowing first time merchants to
download all needed components, information, and automatically pay for E-xact's
services is intended to be deployed to dramatically reduce the cost and time of
acquiring new customers.
Furthermore, E-xact intends to focus development on all mission critical
aspects of the system and address issues pertaining to the growth or "scale" and
the redundancy or "fault tolerant" capabilities of the system as a whole.
Additional components and connections to the system will provide greater
stability and availability of the system to all customers. Microsoft Consulting
Services has been engaged to assist in designing and deploying architecture
capable of processing a significant volume of simultaneous transactions.
E-xact plans to continue to extend the connectivity capabilities of its
system and software in order that transactions can be processed anywhere in the
world. The next targeted gateway certification is with First Data Corporation, a
large transaction processing network in the U.S. This would expand E-xact's
position in the U.S. marketplace by providing broader processing capabilities
and allow service with over 95% coverage of the U.S. banks.
E-xact plans to enhance the merchant account tools including additional
levels of password protection so that access would be restricted to individuals
granted appropriate authorizations, and development of new reporting
capabilities.
THE MARKET FOR THE PRODUCTS
Market Overview
E-commerce
The term "Internet commerce" encompasses the use of the Internet for
marketing, advertising, trading, and selling goods and services. The ability to
use the Internet for marketing and advertising results from the power to
communicate information through the Internet to a large number of individuals,
businesses as well as consumers. The ability to use the Internet to consummate
sales and other commercial transactions results from the power to conduct
two-way communication from merchant to buyer and from buyer to merchant through
the Internet.
Business and the Internet
In order to conduct business over the Internet and accept payment by
credit card, a merchant needs a merchant account. A merchant account is an
identification number that identifies a business that is authorized to process
credit card payments. A merchant account for online sales is different from a
merchant account used in a traditional store.
Transaction Processing
The Internet has opened up new possibilities for processing financial
transactions. While most commerce is still conducted in the physical world, the
exchange of goods and services for payment over the Internet is growing rapidly.
Continued growth of Internet commerce will depend in part on: (1) the ability of
buyers and sellers to use familiar forms of payment online, such as credit and
debit cards and checks, in a simple and secure manner; and (2) the availability
of payment software and services that:
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o securely transmit and store payment information with minimal
interruption of a consumer's online experience;
o are convenient for merchants to install and maintain;
o connect merchants to major payment processors and financial
institutions;
o facilitate familiar types of transactions from the physical world -
(such as bill payment) on the Internet; and
o provide common payment platforms for merchants selling goods and
services both at physical points-of-sale and electronic storefronts.
MARKETING AND SALES STRATEGY
Overview
To date, E-xact has undertaken virtually no advertising, either off-line
or online to promote E-xact in the e-merchant/Internet marketplace, other than
establishing its Web site.
E-xact is currently in the process of developing a comprehensive marketing
strategy, which will serve to launch its product/service on a wider scale.
E-xact is considering participation in industry trade shows to expand its
exposure, conducting press tours, and generally achieving greater visibility in
the marketplace. A portion of the proceeds of this offering will be used to
develop a sales and marketing strategy tied with further development of the
software product.
E-xact's management has determined that the most effective means by which
to market its transaction processing product/service is to leverage its direct
sales efforts through a number of marketing channels rather than pursue a mass
marketing effort directly to merchants. These channels have been identified as
the primary sources which merchants contact and through which they typically
work in order to establish their Internet e-commerce systems. Firms within these
channels become E-xact Partners. The four market channels which E-xact is
pursuing are:
1. Internet service providers;
2. Web developers;
3. Application developers; and
4. Financial institutions and independent sales organizations.
E-xact offers its Partners the following benefits:
o Private label branding;
o The potential for private dedicated network connections;
o Transactional revenue sharing;
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o Ability to package the transaction processing component with the
Partner's software or Web hosting solutions;
o Technical support; and
o Ease of integration.
Partners in these market channels provide the Transaction Processing
Component to the merchant--typically, as if it is part of their own
product/service. For example, a financial institution or internet service
provider can provide the Transaction Processing Component to companies it works
with as part of its e-commerce services. When the merchant logs on to the
financial institution's or internet service provider's Web site to look at his
or her merchant account, the financial institution's or internet service
provider's name and corporate logo or branding appears at the top of the screen
with a company logo also appearing on the page.
Where it is necessary, as with financial institutions that become
Partners, E-xact establishes dedicated network connections in order to ensure
the integrity of the system and to maximize security. Non-Internet based
applications may also require dedicated network connections.
Application developers integrate E-xact's payment capabilities into their
products, seamlessly providing merchants setting up their own e-commerce Web
site with the ability to accept secure payments by credit card over the
Internet.
Pricing
E-xact Partners can share in the revenue generated by processing customer
transactions at each of their client merchant's Web sites. Partners also may
choose whether they would like to administer the service to their customers or
have E-xact bill them directly. E-xact has two pricing structures, wholesale and
retail. Wholesale prices apply to channel distributors such as internet service
providers, Web developers, application developers and financial institutions.
Retail rates apply to businesses selling products or services directly to
consumers.
E-xact charges an activation fee for each merchant credit card account the
customer would like to enable with E-xact (i.e., one for Visa, one for
MasterCard U.S. etc). This fee is charged only once per account. The monthly
service charge is to maintain the merchant account(s) with E-xact's servers.
Included in this charge is access to E-xact's member services that feature tools
such as Internet point of sale terminals, transactional searching, and reporting
tools.
TARGET MARKET CHANNELS
Technical Market Channels: ISPs, Web Developers, Application Developers
E-xact considers internet service providers, Web developers and
application developers as "technical market channels" since they understand
software, servers, connectivity and other aspects necessary for integrating
E-xact's Transaction Processing Component. A key aspect of E-xact's marketing to
these technical channels is the fact that its software is easy to integrate.
E-xact provides an interface to communicate with the most common operating
systems such as JAVA, LINUX, UNIX and COM. This
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reduces the technical barrier and makes it easier for these companies to
incorporate E-xact's transaction processing component with their existing
software and systems.
A second key aspect of E-xact's marketing to these channels is that its
Transaction Processing Component can be virtually transparent to end users of
products and services provided by the companies in these channels. E-xact can be
identified only by a company logo.
Internet service providers present a dual market: 1) providing the E-xact
Transaction Processing Component as part of e-commerce solutions which they sell
to their customers and 2) as users of E-xact's system to handle their own
transaction processing (accepting payment for their Internet access programs and
other services). Due to the volume of transactions possible with internet
service providers, pricing to internet service providers is typically negotiated
on a deal by deal basis.
Web developers can provide E-xact's Transaction Processing Component as an
integrated part of e-commerce solutions that they develop and manage for
clients. For each transaction processed through those e-commerce solutions, the
Web developer can receive a portion of the transaction processing revenue.
Application developers include both those that are developing software
designed for Internet e-commerce and developers of other transaction processing
applications. An example of another transaction processing application would be
a computerized point-of-sale terminal, as where a customer visits a business,
makes a purchase, pays by credit card and the credit card information is entered
into the terminal or a PC by a cashier or sales agent. The transaction is then
sent via the Internet through E-xact to the bank for approval. Although the
approval process travels over the Internet, the actual point of sale may not
have been conducted via the internet.
Financial Institutions
E-xact has been able to take advantage of having first established a
relationship with the Royal Bank to secure additional other clients and to
develop relationships with other financial institutions, such as Shared Network
Services and, more recently, Canadian Imperial Bank of Commerce. Typically,
these relationships can provide many referrals of other direct clients.
Direct Marketing to Merchants
Direct marketing does not currently comprise a major portion of E-xact's
marketing strategy, however, it is taking place via E-xact's Web site and
through word-of-mouth. For over three months, it has been possible to download
E-xact's transaction processing component from its Web site at WWW.E-XACT.COM.
Management reports that an estimated 500 downloads of the component have taken
place to date. These are primarily companies with which E-xact has had no direct
prior contact. Not all of these are processing transactions through E-xact at
this time--frequently the ability to begin processing is delayed by merchants
not yet establishing their credit card merchant accounts.
In addition, most of E-xact's current client base has made first contact
with E-xact by way of word-of-mouth referrals. Among E-xact's approximately 75
current clients are the BC Children's Hospital, Lowrider Records, Internet
Direct and the Telelink Paging Network.
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BUSINESS OBJECTIVES AND MILESTONES
The following business objectives and milestones describe the major goals
that E-xact proposes to accomplish in the twelve months following the completion
of this offering.
1. E-xact intends to augment its management team by hiring individuals
with experience in key functional areas. In order to achieve this
objective, the following milestones will have to be met:
(a) hire a Vice President of Finance in the first quarter of 2000;
(b) hire a Vice President of Technology in the first quarter of
2000; and
(c) hire a Vice President of Marketing in the second quarter of
2000.
The total estimated annual cost for these potential expenditures is
$250,000 and is accounted for as part of E-xact's proposed management and
administration expenses.
2. E-xact intends to continue to further develop its software
capabilities, new client acquisition process and Web based Merchant
Reporting Tools. In order to achieve this objective, the following
milestones will have to be met:
(a) achieve a second U.S. Gateway certification by end of the
second quarter of 2000;
(b) hire additional development programmers or Contractors in the
fourth quarter of 1999;
(c) develop automated processes to acquire new clients;
(d) develop additional fraud prevention and risk assessment
capabilities; and
(e) enhance software scaleability.
The total estimated annual cost for these expenditures is $525,000 and is
accounted for as part of E-xact's proposed technical development.
3. E-xact will be expanding its personnel and extending network
capabilities in the form of mission critical and fault tolerant
systems and will need to add network hardware and software. In order
to achieve this objective, the following milestones will have to be
met:
(a) deploy redundant server computers (and associated software)
needed to facilitate E-xact's North American Transaction
Processing network;
(b) deploy scalable, redundant database servers for development
and production environments; and
(c) acquire additional workstations.
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The total estimated annual cost for these expenditures is $200,000 and is
accounted for as part of E-xact's proposed capital expenditures.
4. E-xact intends to develop and execute a sales and marketing strategy
to develop channel partners, re-sellers and strategic relationships
resulting in increased sign-ups of "e-merchants" using E-xact's
system. In order to achieve this objective, the following milestones
will have to be met:
(a) produce print and electronic media materials to be used by
sales staff, channel re-sellers and customers;
(b) form strategic relationships with identified channel
opportunities; and
(c) hire marketing and business development staff.
The total estimated annual cost for these expenditures is $175,000 and is
accounted for as part of E-xact's proposed marketing expenses.
5. E-xact will be establishing larger operational and management
facilities, increased connectivity and communication costs, travel
and other operational costs. The total estimated annual cost for
these expenditures is $131,325 and is accounted for as part of
E-xact's proposed working capital expenses.
COMPETITION
Competition in the Market
The market for Internet commerce software and services is relatively new,
intensely competitive, quickly evolving, and subject to rapid technological
change. Numerous companies are developing e-commerce and online financial
transaction technologies and systems. Key competitors include:
CyberSource Corporation of San Jose, California
CyberSource provides e-commerce transaction processing and other back-end
applications and support to businesses that sell over the Internet. Its software
and services include tax calculation, fulfillment management, and fraud
prevention. The company enables secure, reliable, real-time multi-currency
payment processing in local currencies worldwide.
CyberCash, Inc. of Reston, Virginia
CyberCash offers secure payment transaction services that encrypt credit
card information. Other offerings include electronic cash payment software and
electronic billing and payment software. CyberCash's complete payment solutions,
which span the traditional retail market to the Internet, provide electronic
commerce solutions for merchants, as well as hardware and software providers and
Internet Service Providers.
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VeriFone, a division of Hewlett-Packard
Since the early 1980s, VeriFone has been offering a wide range of
point-of-sale terminals and printers, and innovative software payment solutions.
VeriFone provides point-of-sale payment solutions to major financial
institutions and processors around the world and Internet payment programs for
merchants, financial institutions and consumers.
Authorize.Net Corporation of Provo, UT
Authorize.Net Corporation develops, markets, and sells Authorize.Net, a
line of products and services that provide solutions for authorizing,
processing, and managing credit card and electronic check transactions over the
Internet. Authorize.Net's transaction processing system sends them on to the
financial institutions for processing.
Internet Secure Inc. of Oakville, Ontario
InternetSecure is a Canadian corporation which provides a secure, on-line,
real-time credit card processing system for Internet merchants. Internet Secure
demonstrated a secure, on-line, real-time credit card processing system that has
been approved by two of the top six banks in Canada. Currently the company
offers Canadian dollar merchant status for Visa, MasterCard and AMEX and US
dollar merchant status for Visa and MasterCard approved and supported by
Canadian and American Banks.
Eliance Corporation of Minneapolis, Minnesota
Eliance focuses on providing its customers with e-commerce solutions
including merchant accounts, POS software and transaction processing as well as
order tracking and fulfillment services.
E-Commerce Exchange of Irvine, California
E-Commerce Exchange is a nationwide credit card processing company,
specializing in merchant account, credit card and electronic check transaction
solutions for non-traditional merchants within the Internet, home-based, phone
order/mail order industries. E-Commerce Exchange focuses on serving
traditionally hard-to-place businesses, such as home-based or new merchants,
business owners with credit problems, high risk businesses, and others which are
considered non-conventional by banks and other credit card processors.
PATENTS, TRADEMARKS AND COPYRIGHTS
Generally speaking, E-xact relies on general trademark and copyright law
to protect its products. E-xact has not formally registered trademarks or
copyrights nor has it obtained any patent protection for any of its products.
MANAGEMENT
No manager or employee of E-xact has signed an employment or
confidentiality agreement. However, E-xact intends to have all personnel sign
confidentiality agreements before the end of 1999, which agreements will likely
provide for non-disclosure of confidential information for a term of
approximately
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<PAGE>
three years following termination of employment with E-xact. Additionally,
E-xact intends to have each Management Team Member sign a non-compete agreement
for a term of approximately one year.
Ted Henderson, Chief Executive Officer and President
Mr. Henderson, age 37, is the President and Chief Executive Officer of
E-xact and has over 16 years expertise in a variety of high-tech sectors. He is
a director of E-xact and is employed on a full-time basis. Mr. Henderson devotes
100% of his time to E-xact and has served in this capacity since October 1999.
Mr. Henderson began his career in public accounting providing business
services to public and private companies, achieving the position of Audit
Manager with Coopers & Lybrand, a leading international public accounting firm.
Mr. Henderson assumed a finance and operations leadership position with a
start-up software development company in 1985, before accepting a controller
position with Key Investments Inc., a KeyCorp company. After one and one-half
years of service, Mr. Henderson was promoted to the position of Chief Financial
Officer with responsibility for directing financing and accounting, Management
Information Systems and operations activities of the company as annual revenues
doubled annually through organic growth and acquisitions. In 1995, Mr. Henderson
accepted a finance and operations management position with Echostar
Communications Corp. in which he helped the company achieve the successful
launch of its small dish satellite service, The Dish Network. Mr. Henderson
helped develop and manage the customer sales and service infrastructure, and
actively participated in Echostar's initial public stock offering and secondary
debt offering. Most recently, Mr. Henderson was employed by Centrobe, an EDS
company, as Vice-President of Business Development in which he was responsible
for the company's sales engineering efforts to provide outsourced electronic
business solutions to the Fortune 500 Marketplace. Prior to his promotion to
this position, Mr. Henderson provided leadership of strategic planning and
acquisition activities for one year and managed profit and loss performance for
a business unit of the company as General Manager for one and a half years.
Prior to joining E-xact, Mr. Henderson assisted in the strategic planning
and acquisition activities, and managed profit and loss performance for a
business unit of Centrobe.
Peter Fahlman, Vice-President
Mr. Fahlman, age 35, is a founder, Vice-President (Business Development)
and director of E-xact, and is currently employed as an independent contractor
on a full time basis.
Mr. Fahlman has over 15 years experience in the computer industry. In
1984, he began programming music using the then new MIDI standard and began
working with regional recording studios in 1986, with computer aided sequencing
software and other MIDI instruments. During that time period, Mr. Fahlman worked
extensively with digital recording technology and software.
In 1993, Mr. Fahlman formed a relationship with local PC manufacturer and
communications company, Northern Computer Products ("NCP"). He began a project
with NCP preparing the first local access of the Internet in the Okanagan Valley
of British Columbia. During that time, he established a teaching lab at NCP and
began developing courses on how to use the Internet. He also taught Internet
courses at Okanagan College in 1994 and 1995, and worked with Cybernet Systems
in deploying Windows NT as the LAN backbone in Hyper Sound's operations as well
as with other Cybernet Systems clients.
-22-
<PAGE>
Mr. Fahlman joined Cybernet Systems full-time as a Microsoft NT network
consultant in 1995 and left in 1996 to become president of Prophase Digital
Corp., a high-tech spin-off of NRS Block Brothers that offered online print
services to the real estate community under the name of Homenet. During Mr.
Fahlman's tenure, Prophase also undertook other projects including a re-write of
Telecheque Canada processing system using Microsoft Web and SQL technologies
integrated fully with bank processing terminals used in stores (Interac
machines) and establishment of a digital recording studio for AM104 radio. Mr.
Fahlman also led the acquisition of Boran Software Corp., Canada's largest real
estate accounting software company.
In 1997, Mr. Fahlman formed DataDirect and DataDirect Consulting Services
with Robert Roker and Brian Archer. The following year, he left Prophase to
focus his interests on DataDirect and its goal to establish itself as a
financial transaction processor and to provide other Internet consulting
activities. In 1998, a joint venture was established between DataDirect and the
Sutton Group, which became E-xact.
Robert Roker, Product Manager
Mr. Roker, age 33, is a co-founder of DataDirect, DataDirect Consulting
Services and of E-xact. He is the Product Manager and is currently employed by
E-xact as an independent contractor on a full time basis.
Mr. Roker is a computer professional with over 10 years experience
designing and implementing financial based information technology. He has
specialized in the development of financial based applications in areas of new
accounting systems, billing and auditing applications for companies such as
Rogers Cantel, BC Tel Mobility, and Westel Telecommunications. In addition, he
has several years of experience as consultant delivering engineering automation
for Rogers Cable and Rogers Shared Services, and significant exposure as a
database analyst responsible for the day-to-day operation of mission critical
corporate information.
Prior to joining E-xact, Mr. Roker was the manager of information
technology for Prophase. During his tenure with Prophase, he led a group of
computer professionals and delivered new facilities for an Internet real estate
search engine and print catalog service called "Homenet", an office management
application for real estate offices called BORAN, and a complete re-engineering
of an authorization network for a company called Telecheck Canada.
Mr. Roker is a graduate of the Computer Systems Technology program at
Langara College and a graduate of Simon Fraser University with a bachelor's
degree in Computer Sciences.
Brian Archer, Development Manager
Mr. Archer, age 35, is currently employed by E-xact as an independent
contractor on a full time basis. He has been with E-xact since its inception and
his computer experience began in 1981. He had worked with Peter Fahlman since
1995 and Robert Roker since 1996 with Prophase and participated in the founding
of E-xact. Mr. Archer joined Prophase in 1991. During his tenure with Prophase,
his primary responsibility was in support of real estate applications on PCs,
mainframes and wide area communications.
Prior to joining Prophase, Mr. Archer spent several years working in the
mining industry, specializing in ore testing software. He attended Simon Fraser
University, majoring in computer science.
-23-
<PAGE>
PERSONNEL
E-xact currently has a total of 8 full time employees. Of these, 1
employee serves in a management and administration capacity, 1 employee serves
in a sales and marketing capacity, 4 employees serve in a research and
development capacity, and 2 employees serve in a customer support capacity.
E-xact proposes to hire additional personnel to meet its stated business
objectives, and to establish a U.S.-based headquarters.
DESCRIPTION OF OFFICES
E-xact leases approximately 1,320 square feet of space at 1610 - 555 West
Hastings Street, Vancouver, B.C., V6H 4N6 under a lease expiring September 14,
2001. All of the employees currently operate out of this office although the
establishment of US based operations is pending.
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with E-xact's financial
statements and accompanying notes included elsewhere in this Prospectus.
INTRODUCTION
E-xact was incorporated under the Company Act of British Columbia, Canada
on August 13, 1998. On July 29, 1999 E-xact was reincorporated in the state of
Delaware, USA. E-xact earns its revenue by charging its customers a setup fee, a
monthly membership fee and a transaction fee. Transaction fees are based on the
number of transactions processed for a particular merchant in a month.
RESULTS OF OPERATIONS
Period August 13, 1998 to December 31, 1998:
During this period, E-xact's revenue consisted of online transaction
revenue and web development revenue. Revenue from online transactions was
derived mainly from one major customer. The average income per month from this
customer was approximately Cdn. $4,400 per month. There is no contract in place
with this customer. Revenue from web development was derived solely from one
customer. Revenue for the period of Cdn. $21,000 was received in terms of a
development contract.
Period January 1, 1999 to June 30, 1999:
E-xact's total revenue for the six months ended June 30, 1999 was Cdn.
$45,700 compared to Cdn. $43,000 for the four and a half months ended December
31, 1998. The average monthly transaction fees increased from Cdn. $5,000 per
month to Cdn. $7,600 per month or 52%. E-xact's focus over the six month and
prior periods was concentrated on the continued development of its software
system. Its customer base grew via networking and direct contact with
prospective customers. Web site development revenue decreased from Cdn. $20,800
in 1998 to Cdn. $9,000 in 1999. The revenue in both periods was obtained from
one customer. E-xact does not anticipate any further income from this division
as the development contract has since lapsed with this customer. In the future,
E-xact does not intend on pursuing web development as a profit center.
Amortization of capital assets for the period ended June 30, 1999 amounted to
approximately Cdn. $13,800 and Cdn. $40,200 for the period ended December 31,
1998. Amortization has been included under research and development ("R&D")
expense except Cdn. $16,000 related to acquired other intangible assets which
was amortized to sales and marketing expense. Programming costs for the period
ended June 30, 1999 amounted to Cdn. $116,400 and Cdn. $7,500 for the period
ended December 31, 1998. These figures are included under R&D. Programming costs
were incurred to improve E-xact's Software System for web based transactions as
well as adding a variety of functions to the existing software. For example,
reporting features were improved and search capabilities were added to allow
merchants to query transactions online. E-xact's databases were redesigned for
greater stability and fault tolerance. E-xact's web site has also been improved
to streamline communications with both existing and potential customers.
Included in R&D expense is equipment lease of Cdn. $6,000 for the four and a
half months ended December 31, 1998 and Cdn. $10,000 for the six months ended
June 30, 1999. Computer equipment was leased in order to facilitate E-xact's
growth.
-25-
<PAGE>
General and administration ("G&A") expenses for the four and a half months
ended December 31, 1998 was Cdn. $39,300 compared to Cdn. $36,767 for the six
months ended June 30, 1999.
Sales and marketing expenses for the period ended December 31, 1998
included the amortization of Cdn. $16,000 of intangible assets acquired from
DataDirect Holdings, Inc. for Cdn. $32,000.
As a result of E-xact's re-incorporation in the State of Delaware on July
29, 1999, there was a deemed disposition of E-xact's assets for Canadian income
tax purposes. E-xact is liable for income tax on the capital gains of the deemed
disposition. The income tax liability is currently estimated to be approximately
Cdn. $350,000 after allowing for tax losses.
LIQUIDITY AND FINANCIAL CONDITION
Subsequent to the period ended June, 1999 E-xact completed a private
placement of 1,552,000 shares of common stock to raise $750,100 after deducting
share issue expenses.
In addition to these funds E-xact is expected to raise net funds of
$1,595,625 from the offering described herein, prior to the payment of expenses.
Based on E-xact's business model and funds from both the private placement and
this offering, E-xact believes that there should be sufficient working capital
for the business to operate within the next twelve months without resorting to
equity or debt financing.
Over the next twelve months, E-xact plans on purchasing computer hardware
of approximately $150,000 and software of $64,000. The hardware and software
purchases will be used to support the company's infrastructure and for further
development of its software product.
YEAR 2000 PROBLEM
The Year 2000 ("Y2K") computer problem refers to the potential for system
and processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
State of Readiness
All E-xact products and upgrades are being developed to be Y2K compliant.
E-xact may, however, be affected by Y2K issues related to non-compliant internal
systems developed by third party vendors. E-xact has not completed a review of
its systems to ensure that they are Y2K compliant. E-xact is not currently aware
of any Y2K problem relating to any of its internal, material systems. E-xact
does not believe that it has any material systems that contain embedded chips
that are not Y2K compliant.
Management believes that absent a systemic failure outside the control of
E-xact, such as a prolonged loss of electrical or telephone service, Y2K
problems at third parties will not have a material impact on the company. E-xact
has no contingency plan for systemic failures such as loss of electrical or
telephone services. E-xact's contingency plan in the event of a non-systemic
failure is to establish relationships with alternative suppliers or vendors to
replace failed suppliers or vendors. E-xact has no other contingency plans or
intention to create other contingency plans.
-26-
<PAGE>
Cost Associated With Y2K Compliance
Costs of testing E-xact's transaction software to ensure it is Y2K
compliant are expected to be approximately Cdn. $5,000 to Cdn. $7,000. Such
expenditures are primarily absorbed within the product development organization.
Based on its overall development expenditure and the amount of time people in
the organization are spending on Y2K compliance, E-xact believes that its
spending on compliance to date has not been material.
Any failure of E-xact to make its products Y2K compliant could result in a
decrease in sales of its products, an increase in allocation of resources to
address Y2K problems of its customers without additional revenue commensurate
with such dedication of resources, or an increase in litigation costs relating
to losses suffered by E-xact's customers due to such Y2K problems. Failure of
E-xact's internal systems could temporarily prevent it from processing orders,
issuing invoices, and developing products, and could require us to devote
significant resources to correcting such problems. E-xact is not aware of any
software supplied by third parties, which is part of the company's processing
system, which is not Y2K compliant. Due to the general uncertainty inherent in
the Y2K computer problem, resulting from the uncertainty of the Y2K readiness of
third party suppliers and vendors, E-xact is unable to determine whether the
consequences of Y2K failures will have a material impact on its business,
results of operations, and financial condition.
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<PAGE>
DESCRIPTION OF SECURITIES
STOCK CAPITAL
The authorized capital stock of E-xact consists of 50,000,000 common
shares of common stock with a par value of $0.001 per share. There are
approximately 50 holders of E-xact common stock and as of the date of this
Prospectus, E-xact had a total of 5,752,000 shares issued and outstanding. All
of the issued shares of E-xact common stock are fully paid and not subject to
any future call or assessment. On September 2, 1999 E-xact's board of directors
authorized a stock split of the authorized and issued share capital of 21,000:1
in preparation for this offering. E-xact has filed an application to list its
common stock on the facilities of the Vancouver Stock Exchange.
Under E-xact's Certificate of Incorporation, all of the common shares rank
equally as to voting rights, participation in a distribution of the assets of
E-xact on a liquidation, dissolution or winding-up of E-xact and the entitlement
to dividends. The holders of the common shares are entitled to receive notice of
all meetings of shareholders and to attend and vote the shares at the meetings.
Each share of common stock carries with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of E-xact or
other distribution of its assets, the holders of the shares of common stock will
be entitled to receive, on a pro rata basis, all of the assets remaining after
E-xact has paid out its liabilities. Distribution in the form of dividends, if
any, will be set by the board of directors.
Provision as to the modification, amendment or variation of the rights
attached to the capital of E-xact are contained in E-xact's Certificate of
Incorporation and the Delaware General Corporation Law. Generally speaking,
substantive changes to the share capital require the approval of the
shareholders by special resolution (at least 75% of the votes cast).
SHARES ELIGIBLE FOR SALE
As of the date of this Prospectus, 5,752,000 shares of common stock of
E-xact are issued and outstanding. These shares are subject to resale
restrictions imposed by the Vancouver Stock Exchange, which allows shares to be
released for trading at various times commencing on the date the shares
initially listed for public trading. Pursuant to these regulations the shares
will be released as follows:
Number of Shares Released Time of Release After Date of Listing
------------------------ --------------------------------------
776,000 Immediately
776,000 Three Months
1,050,000 Six Months
1,050,000 Nine Months
1,050,000 Twelve Months
1,050,000 Fifteen Months
1,050,000 Eighteen Months
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<PAGE>
STOCK OWNERSHIP
The following are the shareholdings of the directors, senior officers and
promoters of E-xact and of any other shareholders which, to the knowledge of
E-xact, beneficially own, directly or indirectly, more than five percent of the
issued common shares of E-xact:
<TABLE>
<CAPTION>
Number of Percentage of Issued
Common Shares Percentage Share Capital After
Name and Municipality of Beneficially Issued Share of the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------- ------------- ---------- ---------------------
<S> <C> <C> <C>
Ted Henderson 50,000 0.87% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Peter Fahlman(1) 880,000 15.30% 9.91%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Cliff Mah(2) 107,500 1.87% -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C. V6J 5B3
Canada
Paul MacNeill(3) 12,000 0.21% -0-
c/o Campney & Murphy
Suite 2100
1111 West Georgia Street
Vancouver, British Columbia
Canada
Lance Tracey(4) 461,000 8.01% 5.19%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Dieter Heidrich(5) 240,000 4.19% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Robert Roker(6) 840,000 14.60% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
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<PAGE>
Number of Percentage of Issued
Common Shares Percentage Share Capital After
Name and Municipality of Beneficially Issued Share of the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------- ------------- ---------- ---------------------
<S> <C> <C> <C>
Brian Archer(7) 420,000 7.3% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Daryl Yurek(8) 685,000 11.96% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Scott Shaw(9) 336,000 5.8% -0-
c/o 1628 555 West Hastings Street
Vancouver, British Columbia V6B 4N6
Canada
[DIRECTORS, OFFICERS, PROMOTERS, AND 5% 4,031,500 70.11% 15.09%
SHAREHOLDERS]
</TABLE>
- ---------------------------
(1)40,000 of these shares are held in the name of Michelle Fahlman, Peter
Fahlman's wife. The remaining shares are beneficially owned through Mr.
Fahlman's ownership of 40% of DataDirect Holdings, Inc. which owns 2,100,000
shares of E-xact common stock.
(2)Includes 67,500 shares that may be acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Cliff
Mah is a 10% member.
(3)All of these shares are held in the name of Debra Windjack, Mr. MacNeill's
wife.
(4)20,000 of these shares are held in the name of Shelagh Tracey, Lance Tracey's
wife. The remaining shares are beneficially owned through Mr. Tracey's
ownership of 21% of Sutton Group Financial Services Ltd., which owns
2,100,000 shares of E-xact common stock.
(5)80,000 of these shares are held jointly with Marie K. Heidrich, Mr.
Heidrich's wife. The remaining shares are beneficially owned through Mr.
Heidrich's position as general partner of the manager of Opus Capital Fund,
LLC, which owns 160,000 shares of E-xact common stock.
(6)These shares are beneficially owned through Mr. Roker's ownership of 40% of
DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact common
stock.
(7)All of these shares are beneficially owned through Mr. Archer's ownership of
20% of DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact
common stock.
(8)Includes 405,000 shares that may be acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Daryl
Yurek is a 60% member, and 160,000 shares beneficially owned through Mr.
Yurek's position as general partner of the manager of Opus Capital Fund, LLC,
which owns 160,000 shares of E-xact common stock.
(9)All of these shares are beneficially owned through Mr. Shaw's ownership of
16% of Sutton Group financial Services, Ltd., which owns 2,100,000 shares of
E-xact common stock.
OPTIONS TO PURCHASE SECURITIES
E-xact's Stock Option Plan was approved by the Company's board of
directors on October 14, 1999 and will be submitted to the Company's
shareholders for approval at the Annual Meeting of Shareholders scheduled for o,
1999. Pursuant to the terms of the letter agreement dated September 16, 1999
between E-xact and Ted Henderson, Mr. Henderson is eligible to receive options
to purchase up to 500,000 shares of common stock of E-xact at a price of $1.00
per share and which will vest over a 36-month period.
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<PAGE>
PLAN OF DISTRIBUTION
OFFERING AND APPOINTMENT OF AGENT
By an agreement dated for reference the 9th day of August, 1999 (the
"Agency Agreement"), E-xact appointed Canaccord Capital Corporation as its Agent
to offer a total of 1,725,000 shares to non-U.S. persons in Canada through the
facilities of the Vancouver Stock Exchange. The shares will be offered at a
price of $1.00 per share on a day (the "Offering Day"), as determined by
Canaccord and E-xact, with the consent of the Vancouver Stock Exchange, which is
not more than 90 days following the date of the receipt issued by the British
Columbia Securities Commission for this Prospectus. In accordance with Vancouver
Stock Exchange rules, E-xact will receive the net proceeds of the offering
within ten business days of the Offering Day. The offering will be made in
accordance with the rules and policies of the Vancouver Stock Exchange.
Under the terms of the Agency Agreement, E-xact has agreed to pay to
Canaccord a commission of $0.075 per share for each share sold from this
offering.
E-xact has filed an application to list its common stock on the facilities
of the Vancouver Stock Exchange.
Canaccord has reserved the right to offer selling group participation in
the normal course of the brokerage business to selling groups of other licensed
broker-dealers, brokers and investment dealers who may or may not be offered
part of the commissions or Agent's Warrant (described below).
E-xact has granted Canaccord a right of first refusal to provide further
public equity financing to E-xact for a period of twelve months from the
effective date of this Prospectus.
The obligations of Canaccord under the Agency Agreement may be terminated
prior to the opening of the market on the day (the "Listing Date") E-xact's
shares are to commence trading on the Vancouver Stock Exchange at the discretion
of Canaccord on the basis of its assessment of the state of the financial
markets. The Agency Agreement may also be terminated at any time upon the
occurrence of certain stated events.
AGENT'S GUARANTEE AND AGENT'S WARRANT
Canaccord has agreed to purchase the balance of any shares remaining
unsold on the Offering Day (the "Agent's Guarantee"). In consideration of the
Agent's Guarantee, Canaccord has been granted the Agent's Warrant.
The Agent's Warrant entitles Canaccord to purchase up to 172,500 shares at
a price of $1.00 per share at any time up to 5:00 p.m. on the first anniversary
of the Listing Date. The Agent's Warrant is non-transferable and will contain,
among other things, anti-dilution provisions and provision for appropriate
adjustment for the class, number and price of shares issuable pursuant to any
exercise thereof upon the occurrence of certain events, including any
subdivision, consolidation or reclassification of the shares or the payment of
stock dividends or the amalgamation of E-xact.
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<PAGE>
Additionally, as consideration for services provided to E-xact by
Canaccord, including providing advice with respect to the structure, timing and
price of the offering, E-xact paid Canaccord a sponsorship fee of $10,000, an
administrative fee of Cdn. $4,000, and a corporate finance fee of 75,000 shares.
The shares of common stock comprising the corporate finance fee and the
shares underlying the Agent's Warrant are being registered pursuant to this
registration statement.
THE PURPOSE OF THIS PROSPECTUS
This prospectus has been included in a registration statement filed under
the U.S. Securities Act of 1933 in order to permit the shares to be legally sold
to the United States purchasers. Copies of this prospectus are being furnished
to each purchaser of the shares, whether in the United States, Canada, or
elsewhere. In addition, the United States securities laws require that the
prospectus be furnished to all subsequent purchasers of the shares from the date
of the U.S. registration statement. Copies of the prospectus will therefore be
made available to any securities broker-dealer who proposes to sell any of the
shares for a customer to a U.S. purchaser.
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<PAGE>
DIRECTORS AND SENIOR OFFICERS
DIRECTORS AND SENIOR OFFICERS
The following is a list of the current directors and senior officers of
E-xact, and their municipalities of residence, current positions with E-xact,
and principal occupations during the past five years:
<TABLE>
<CAPTION>
Name and Municipality of Residence Principal Occupation for Previous Five Years
- -------------------------- --------------------------------------------
<S> <C>
Ted Henderson(1) President, Chief Executive Officer and a Director of E-xact since
Morrison, Colorado October 4, 1999. Prior to that he was Vice President of Business
President, Chief Executive Development from February 1999 to September 1999; General
Officer and Director Manager from October 1997 to February 1998, and a director of
Corporate Development from October, 1996 to October, 1997 at
Centrobe (an EDS company), a provider of end-to-end electronic
business solutions. Prior to that he was Director of Business
Operations at Echostar Communications Corporation from April, 1995 to
September, 1996, a publicly held digital broadcast satellite
communications manufacturing, distribution, and service provider. Prior to
that he was Senior Vice President and Chief Financial Officer at Key
Investments, Inc., from September, 1992 to March, 1995, a financial
services company and pioneer in full-service banking and investments.
Peter G. Fahlman President and a director of E-xact since September 1, 1998;
Delta, B.C. partner in Data Direct Consulting Services, an internet software
Vice-President (Business development company, since November, 1997; prior to that he was
Development) and Director President of Prophase Development Corp., an online print services company,
from May 1996 to December 1997; prior to that he was a consultant to
Cybernet Technologies, from September 1995 to April 1996; prior to that he
was a partner in Hyper Sound Recording, a high-tech music retail operation
located in Vernon, British Columbia from May 1989 to January 1996.
Lance Tracey(1)(2) Secretary and a director of E-xact since September 1, 1998; President
North Vancouver, B.C. of Code Marketing Ltd. since January 1990; President and Director
Secretary and Director of Sutton Group Realty Services Inc. from January 1986 to present.
President of I.D. Internet Direct Ltd. from January 1993 to January 1999.
Dieter Heidrich(2) Managing Director of Opus Capital, LLP, a venture capital company,
Boulder, Colorado since October 1993. Prior to that he was a general partner with
Weiss, Peck, and Greer Venture Partners from October 1986 to October 1993.
-33-
<PAGE>
Name and Municipality of Residence Principal Occupation for Previous Five Years
- -------------------------- --------------------------------------------
<S> <C>
Cliff Mah(2) Partner with Bolder Venture Partners, LLC, a venture capital
Vancouver, B.C. company, since June 1999. Prior to joining Bolder Venture Partners,
Director he was an investment banker at Canaccord from November 1998 to
May 1999 and at C.M. Oliver and Company from October 1996 to
November 1998. Prior to that he became, through two leverage
buy-outs, the President and controlling shareholder of Canadian
Neon Ltd., a Vancouver based manufacturing company, in 1992 and
Northwest Signs Ltd., a Seattle, Washington based manufacturing
company, in 1993.
Paul C. MacNeill(1) Partner with Campney & Murphy, Barristers and Solicitors, since 1981.
West Vancouver, B.C.
Director
</TABLE>
- --------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Other than receiving stock options from time to time, the directors of
E-xact are not compensated for serving as directors. See "Principal Holders of
Securities" for particulars of the shares held by the directors and senior
officers.
Other Associations
During the past five years, the principals of E-xact have served as
principals of the following reporting issuers during the periods and in the
capacities noted below:
<TABLE>
<CAPTION>
Principal Reporting Issuer Capacity Period
- -------------- --------------------------------------- ---------------------- -------------------
<S> <C> <C> <C>
Lance Tracey Sutton Group Financial Services Ltd. Director 01/87 - present
ID Internet Direct Ltd. Director and Officer 01/93 - present
dba Telecom Corp. Director 07/92 - 01/96
Paul C. America Mineral Fields Inc. Director 03/98 - present
MacNeill Anaconda Uranium Corp. Director 12/97 - present
Axion Communications Inc. Director 08/96 - present
Consolidated Firstfund Capital Corp. Secretary 09/92 - 06/95
Diagem International Resource Corp. Director 12/97 - present
Jordex Resources Inc. Secretary 04/98 - present
Minefinders Corporation Inc. Director 05/95 - present
Minefinders Corporation Inc. Secretary 07/95 - present
Prospex Mining Inc. Director 10/93 - 06/99
Unique Broadband Systems Inc. Director 07/97 - present
Unique Broadband Systems Inc. Secretary 07/97 - 08/97
</TABLE>
-34-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement
E-xact is party to a consulting agreement (the "Consulting Agreement")
with Bolder Venture Partners L.L.C. ("Bolder") made July 28, 1999. Bolder
Venture Partners is a limited liability company incorporated under the laws of
the State of Colorado and is owned 10% by Cliff Mah, a director of E-xact.
Under the terms of the Consulting Agreement, Bolder agrees to provide
consulting services to the officers of E-xact relating to matters of corporate
development, strategic planning, raising of capital and other financial matters,
and to assist with certain private placements and public offerings of E-xact's
securities, including this offering.
In consideration of these services, E-xact agrees to pay Bolder Venture
Partners a monthly retainer of $10,000, and purchase warrants to acquire up to
900,000 shares of E-xact for a period of five years from July 28, 1999. The
warrants will be exercisable as follows:
o 25% at $0.25 per share as of July 28, 1999;
o 25% at $0.50 per share as of October 14, 1999;
o 25% at $1.00 per share upon completion of this offering; and
o 25% at a price per share equal to the price per share under a future
private placement of not less than $3,000,000, if such a private
placement is made.
The term of the Consulting Agreement ends on June 30, 2000.
Under a management agreement dated April 15, 1999 between DataDirect,
Peter Fahlman, Robert Roker, and E-xact, E-xact retained DataDirect to provide
certain management services including services to the ongoing development of
E-xact's software. The term of the agreement commenced April 15, 1999 and will
continue on a month-to-month basis until terminated by either party upon 30
days' prior notice to the other party. E-xact will pay DataDirect a monthly fee
of Cdn. $20,000 per month plus G.S.T. (goods and services tax).
-35-
<PAGE>
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to the two most
highly paid executive officers of E-xact during the most recently completed
financial year for services rendered to E-xact:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
----------------------------------- ------------
Awards Payouts
------------ -------
Options/
Name and Sars
Principle Other Annual Granted LTIP(1) All Other
Position Period Salary Bonus Compensation (#) Payouts Compensation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Peter Fahlman, Year ended N/A N/A N/A N/A N/A N/A
President(2) Dec. 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
Ted Henderson(3) N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over a
period longer than one financial year, but does not include option or stock
appreciation right plans.
(2) Mr. Fahlman has served as the acting Chief Executive Officer while E-xact
conducted a search for permanent chief executive officer. Mr. Fahlman
served in this capacity from August 13, 1998 to October 4, 1999, at which
time he was replaced by Mr. Henderson. Mr. Fahlman did not receive any
compensation for his service as CEO.
(3) Mr. Henderson began serving as the President and Chief Executive Officer on
October 4, 1999. Mr. Henderson will receive an annual salary of $110,000,
and will be eligible to receive a bonus of up to 50% of his annualized base
salary based on the achievement of goals to be mutually agreed upon between
Mr. Henderson and the board of directors of E-xact. Mr. Henderson is
eligible to receive options to purchase up to 500,000 shares of E-xact
common stock at an exercise price of $1.00 per share that will vest over a
36-month period and expire five years from the date of grant.
-36-
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of E-xact. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of E-xact may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Investors are cautioned not to put
undue reliance on any forward-looking statements. Except for their ongoing
obligations to disclose material information as required by the federal
securities law, we do not have any intention or obligation to update
forward-looking statements after this Prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
You should understand that various factors, in addition to those discussed
elsewhere in this document and in the documents referred to in this document,
could affect the future results of the combined company following the merger and
could cause results to differ materially from those expressed in such
forward-looking statements.
DIVIDEND RECORD AND POLICY
E-xact has not paid any dividends since incorporation and it has no plans
to pay dividends in the immediate future. E-xact expects to retain its earnings
to finance further growth and, when appropriate, retire debt. The directors of
E-xact will determine if and when dividends should be declared and paid in the
future based on E-xact's financial position at the relevant time. All of the
shares of E-xact are entitled to an equal share in any dividends declared and
paid.
EXPERTS
The auditors of E-xact are Deloitte & Touche LLP, Chartered Accountants,
2100-1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1P4. The financial
statements of E-xact Transactions Ltd. included in this Prospectus have been
audited by Deloitte & Touche LLP, Chartered Accountants, to the extent and for
the period set forth in their report appearing elsewhere herein, and are
included herein in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
E-xact knows of no material pending legal proceedings to which E-xact is
or is likely to be a party or to which any of its properties are or are likely
to be the subject.
-37-
<PAGE>
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of E-xact in connection with the offering of the securities in Canada on the
Vancouver Stock Exchange.
The validity of the securities offered will be passed upon for E-xact by
Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that we
file with the Securities and Exchange Commission at the SEC's public reference
rooms in Washington, D.C.; New York, New York; and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1 (800) SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov."
-38-
<PAGE>
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER 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 OCTOBER 22, 1999
SELLING STOCKHOLDER
PROSPECTUS
2,832,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
------------------------------
E-xact Transactions Ltd. is a software development company that offers a
simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer software allows computer controlled cash registers, personal computers,
personal computer based point-of-sale terminals, computer systems, and
proprietary product platforms to accept credit card payments and submit those
payments to processing centers for authorization and settlement.
The common stock may be offered and sold from time to time by the Selling
Stockholders through underwriters, dealers, agents, or directly to one or more
purchasers in fixed price offerings, in negotiated transactions, at market
prices prevailing at the time of sale or at prices related to such market
prices. The terms of the offering and sale of common stock in respect of which
this Prospectus is being delivered, including any initial public offering price,
any discounts, commissions, or concessions allowed or paid to underwriters,
dealers, or agents, the purchase price of the common stock and the proceeds to
the Selling Stockholders, and any other material terms shall be set forth in a
Prospectus Supplement.
All 2,832,000 shares of common stock of E-xact Transactions Ltd. offered
hereby are being offered for sale by the Selling Stockholders identified herein.
See "Selling Stockholders." E-xact will not receive any proceeds from the sale
of the common stock by the Selling Stockholders.
------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" LOCATED AT ALTERNATE PAGES 4 TO 8.
------------------------------
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 THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is ______, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY............................................................Alternate 3
RISK FACTORS.......................................................Alternate 4
SELLING STOCKHOLDERS...............................................Alternate 9
PLAN OF DISTRIBUTION..............................................Alternate 16
USE OF PROCEEDS...................................................Alternate 16
Alternate 2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the offering, you should read this entire document and the documents we have
referred you to. See "Where You Can Find More Information".
<TABLE>
<S> <C>
E-XACT: E-xact was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 22, 1998 E-xact filed a
Certificate of Domestication and Certificate of Incorporation with
the Secretary of State of the State of Delaware, thereby
"domesticating" or transitioning from a Canadian company to one
organized under the laws of the State of Delaware. The authorized
share capital of E-xact consists of 50,000,000 shares of common
stock with a par value of $.001 per share. See "The Company."
BUSINESS OF E-XACT: E-xact is a software development company that offers a simple
electronic commerce, also known as "e-commerce," solution for
real time transaction processing combined with a suite of value
added merchant services. E-xact's software allows computer
controlled cash registers, personal computers, personal computer
based point-of-sale terminals, computer systems and proprietary
product platforms to accept credit card payments and submit those
payments to payment processing centers for authorization and
settlement.
THE OFFERING: Common Stock
Offered by the
Selling Stockholders2,832,000 Shares
Use of Proceeds: All proceeds from the offering will be
received by the Selling Stockholders.
SELLING STOCKHOLDERS: The Selling Stockholders are
founders of E-xact or purchased their shares in a
private placement pursuant to an exemption
provided by Regulation D under the Securities Act
of 1933, as amended.
</TABLE>
Alternate 3
<PAGE>
RISK FACTORS
An investment in E-xact common stock involves certain risks. Prospective
investors should carefully consider the following risk factors, in addition to
all of the other information in this Prospectus, in determining whether to
purchase shares of E-xact stock.
WE CANNOT BE SURE THAT SUFFICIENT WORKING CAPITAL WILL BE AVAILABLE TO COVER
NECESSARY EXPENSES
Since inception E-xact has financed its operations primarily through the
private placement of equity securities, stockholder loans, and minimal sales
from its e-commerce products. From inception, E-xact has raised approximately
$840,517 in net proceeds from private equity financing.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. The timing and amount of such spending is difficult
to predict accurately and will depend upon several factors, including the
progress of research and development efforts and competing technological and
market developments, commercialization of products currently under development
and market acceptance and demand for E-xact's products. E-xact currently
estimates that it will be necessary to spend approximately $1,287,000 for the
twelve months ending November 2000. There can be no assurance that cash flow
from operations, together with working capital and net proceeds from the initial
public offering will be sufficient to fully fund the planned expansion of
E-xact's operations. If necessary, E-xact may seek additional funds through
equity or debt financing, through collaborative or other arrangements with other
companies and from other sources. If additional funds are raised by issuing
equity securities, further dilution to shareholders could occur. There can be no
assurance that additional financing will be available when needed or on terms
acceptable to E-xact. If adequate funds are not available, E-xact could be
required to delay development or commercialization of new products, to license
to third parties the rights to commercialize certain products or technologies
that E-xact would otherwise seek to commercialize for itself or to reduce the
marketing, customer support or other resources devoted to certain of its
products, each of which could have a material adverse effect on E-xact's
business, financial condition and results of operations.
WE HAVE A LIMITED OPERATING AND SALES HISTORY
E-xact has a limited history of operations that has consisted primarily of
research and development and initial sales of its e-commerce products and
services. E-xact has generated only limited revenues from sales of its
e-commerce products and services and does not have experience in manufacturing,
selling or marketing its products in large, commercial quantities. E-xact's
products and services has not gained significant market exposure or demonstrable
market acceptance yet. Whether E-xact can successfully manage the transition to
a larger-scale commercial enterprise will depend upon a number of factors,
including expanding its sales and marketing capabilities. Given the absence of
clear market acceptance with respect to this line of products, there can be no
assurance as to the achievability of projected market penetration rates and
associated sales revenues.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET
E-xact's products compete against those of other established companies,
some of which have greater financial, marketing and other resources than those
of E-xact. These competitors may be able to institute and sustain price wars, or
imitate the features of E-xact's products, resulting in a reduction of E-xact's
share of
Alternate 4
<PAGE>
the market and reduced price levels and profit margins. In addition, there are
no significant barriers to new competitors entering the market place.
WE RELY ON KEY PERSONNEL
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has not entered into employment agreements with anyone other than Ted Henderson,
but anticipates executing such agreements with all key personnel by the end of
1999. E-xact anticipates that the agreements to be entered into with key
personnel will include non-competition provisions that extend for twelve months
following the employee's termination and non-disclosure provisions that extend
three years following the employee's termination. The employment agreement with
Ted Henderson extends from September 16, 1999 to September 15, 2000.
Competition for such personnel is intense, and there can be no assurance
that E-xact can retain its key technical and managerial personnel or that it can
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future. The loss of key personnel, especially if without
advance notice, or the inability to hire or retain qualified personnel could
have a material adverse effect upon E-xact's business, financial condition and
results of operations.
WE MUST DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH TECHNOLOGICAL
CHANGES
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. E-xact's future success will depend in large part on E-xact's
ability to continue to respond to such changes. There can be no assurance that
E-xact will be able to respond to such changes or that new or improved competing
products will not be developed that render E-xact's software products and
e-commerce services non-competitive. Product research and development will
require substantial expenditures and will be subject to inherent risks and there
can be no assurance that E-xact will be successful in developing or improving
products that have the characteristics necessary to effectively meet the
market's needs, or that any new products introduced will be successfully
commercialized. E-xact's products may face competition from, or be rendered
obsolete by, new products which have yet to be launched.
RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. E-xact relies on third party
encryption technology to provide the security necessary to transmit confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
will not result in a compromise of breach of the encryption technology used by
E-xact to protect customer transaction data. If any such compromise of E-xact's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition and operating results.
Alternate 5
<PAGE>
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
E-xact has only limited experience selling and marketing its e-commerce
products and services, and does not have any experience selling and marketing
its products in commercial quantities.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Year 2000 ("Y2K") computer problem refers to the potential for system
and processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
E-xact's e-commerce products and services are being developed to be fully
Y2K compliant, although the effectiveness of present efforts to address the Y2K
issue cannot be assured. In addition, E-xact intends to implement programs to
ensure that all software and hardware used in connection with the design of its
software products and the provision of services to its customers and suppliers
and its internal operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality.
E-xact does not anticipate incurring significant additional costs to address the
Year 2000 issue, although the effectiveness of its present efforts to address
the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by the end of October 1999. E-xact has not yet sought information from
third parties, including their customers and suppliers, with respect to their
compliance with the Y2K issue with respect to their own computer software and
hardware. If the present efforts to address the Y2K issue are unsuccessful, or
if other third parties with which E-xact conducts business do not successfully
address the Y2K issue, the business and financial condition of E-xact could be
adversely affected.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISK OF THIRD PARTY CLAIMS
OF INFRINGEMENT
The patent, trademark, copyright and trade secret positions of e-commerce
companies, including those of E-xact, are uncertain and involve complex and
evolving legal and factual questions. The coverage sought in a patent
application either can be denied or significantly reduced before or after the
patent is issued. Consequently, there can be no assurance that any patents from
any future patent application will be issued, that the scope of the patent
protection will exclude competitors or provide competitive advantages to E-xact,
that any of E-xact's patents will be held valid if subsequently challenged or
that others will not claim rights in or ownership of the patents and other
proprietary rights held by E-xact. In addition, there can be no assurance that
competitors, many of which have substantial resources, will not seek to apply
for and obtain patents that will prevent, limit or interfere with E-xact's
ability to make, use or sell its products and services either in Canada, the
United States or in international markets. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to E-xact, may also be
necessary to enforce patent or other intellectual property rights of E-xact or
to determine the scope and validity of other parties' proprietary rights. There
can be no assurance that E-xact will have the financial resources to defend its
patents, trademarks and copyrights from infringement or claims of invalidity.
E-xact also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
Alternate 6
<PAGE>
gain access to or disclose E-xact's proprietary technology or that E-xact can
meaningfully protect its rights in such unpatented proprietary technology.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
E-xact's business involves the risk of product liability claims. Although
E-xact has not experienced any product liability claims to date, any such claims
could have a material adverse effect on E-xact. E-xact does not currently
maintain product liability insurance. E-xact intends to obtain such insurance
but there can be no assurance that it would be available on commercially
acceptable terms, or at all. Even if E-xact obtains product liability insurance,
there can be no assurance that it would prove adequate or that a product
liability claim, insured or uninsured, would not have a material adverse effect
on E-xact's business, financial condition and results of operations. Even if a
product liability claim is not successful, the time and expense of defending
against such a claim may adversely affect E-xact's business, financial condition
and results of operations.
TRANSACTION PROCESSING VOLUME RISK
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications may run efficiently in
low volume transaction processing environments but slow down or cease to operate
in high volume environments or during peak hours of use. E-xact's future success
will depend in large part on whether E-xact's software solutions will adequately
respond to such high volume transaction processing environments in a reliable
and efficient manner. There can be no assurance that E-xact software solutions
will be able to process large transaction volumes in a seamless manner. Product
research and development will require substantial expenditures and will be
subject to inherent risks and there can be no assurance that E-xact will be
successful in developing or improving products that have the characteristics
necessary to effectively meet the high volume transaction processing market.
OUR STOCK HAS NEVER BEEN PUBLICLY TRADED; POSSIBLE VOLATILITY OF STOCK; DILUTION
Prior to the initial public offering, there was no public market for
E-xact's common stock, and there can be no assurance that an active trading
market will develop and be sustained, or that the market price of the shares
will not decline below the initial public offering price. The initial public
offering price of the shares was determined by negotiations between E-xact and
Canaccord. As such, the initial public offering price is not necessarily related
to E-xact's net worth or any other established criteria of value and may not
bear any relationship to the market price of the shares following the completion
of the offering. The market prices for securities of e-commerce software and
services companies have historically been highly volatile. Announcements of
technological innovations or new products by E-xact or its competitors,
developments concerning proprietary rights, including patents and litigation
matters, and changes in financial estimates by securities analysts or failure of
E-xact to meet such estimates and other factors may have a significant impact on
the market price of the Common Shares. In addition, E-xact believes that
fluctuations in its operating results may cause the market price of its Common
Shares to fluctuate, perhaps substantially.
REVENUE PROJECTIONS
Revenue growth projections of E-xact are not yet supported by sales
contracts or by firm sales opportunities. There is no assurance that E-xact will
be able to achieve competitive pricing for its planned products or a significant
volume of sales.
Alternate 7
<PAGE>
WE HAVE NEVER PAID DIVIDENDS AND DO NOT ANTICIPATE PAYING DIVIDENDS IN THE
FUTURE
E-xact has not paid dividends in the past and does not anticipate paying
dividends in the near future. E-xact expects to retain its earnings to finance
further growth and, when appropriate, retire debt. See "Dividend Record and
Policy."
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES
Because shares of E-xact common stock will not be quoted on a national
securities exchange in the United States, the shares will be subject to rules
adopted by the U.S. Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny stocks." Such rules require
that prior to effecting any transaction in a penny stock, a broker or dealer
must give the customer a risk disclosure document that describes various risks
associated with an investment in penny stocks, as well as various costs and fees
associated with such an investment. It is possible that some brokers may be
unwilling to engage in transactions of shares of E-xact common stock because of
these added disclosure requirements, which would make it more difficult for a
purchaser in this offering to sell his shares.
LISTING THE STOCK ON THE VANCOUVER STOCK EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on the
Vancouver Stock Exchange and will be primarily traded on that exchange.] The
rules of the Vancouver Stock Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Vancouver Stock Exchange listing does not assure a stockholder that there
will be a purchaser for his shares when the stockholder wishes to sell.
Alternate 8
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of E-xact's common stock as of October 12, 1999, and as
adjusted to reflect the sale of shares being offered hereby, for each of the
Selling Stockholders. Except as otherwise noted, the persons or entities in this
table have sole voting and investing power with respect to all of the shares
owned by them.
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
477928 B.C. Ltd. 50,000 50,000 -0- -0-
5648 Westhaven Road
West Vancouver, B.C.
V7W 1T6
574733 B.C. Ltd. 10,000 10,000 -0- -0-
c/o 1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3 Canada
585231 B.C. Ltd. 50,000 50,000 -0- -0-
3251 West 3rd Avenue
Vancouver, B.C.
V6K 1N5
Thomas J. Ahmann 15,000 15,000 -0- -0-
2601 Jeweh Lane North
Plymouth, MW
55447, USA
Ahmad Akrami(1) 82,500 105,000 -0- -0-
902 S. Wiley Ct.
Superior, Colorado 80027
Joanne Archer 20,000 20,000 -0- -0-
1508 - 820 5th Avenue, S.W.
Calgary, A.B
T2P ONY Canada
Ann Archibald 30,000 30,000 -0- -0-
1797 Layton Drive
North Vancouver, B.C.
V7H 1X7
Randy Ayers 6,000 6,000 -0- -0-
10511 Suncrest Drive
Delta, B.C.
V4C 2N1
Bruce Buckland 6,000 6,000 -0- -0-
7083 114A Street
Delta, B.C.
V4E 1X3
</TABLE>
Alternate 9
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
Glenn R. Butterworth 6,000 6,000 -0- -0-
9346 Romaniuk Drive
Richmond, B.C.
V7E 5G7
Raymond Gordon Campbell 10,000 10,000 -0- -0-
3166 Point Grey Road
Vancouver, B.C.
V6K 1B2
Jeannet Clark 3,000 3,000 -0- -0-
2515 Amber Court
Coquitlam, B.C.
V3E 3K8
DataDirect Holdings Inc. 2,100,000 190,000 1,910,000 24.73%
1610-555 West Hastinngs Street
Vancouver, B.C.
V6B 4N6
Maggie Elliot 10,000 10,000 -0- -0-
9 Amalia Crescent
Belwood, Ontario
N0B 1J0
Michelle Fahlman 40,000 40,000 -0- -0-
855 55A Street
Delta, B.C.
V4M 3M3
Ted Henderson 50,000 50,000 -0- -0-
c/o E-xact Transactions Ltd.
1616 - 555 West Hastings Street
Vancouver, B.C.
V6H 4N6
K. Dieter & Marie K. Heidrich(2) 80,000 80,000 -0- -0-
230 Green Rock Drive
Boulder, Colorado
80302
Brian Leigh Hilder 10,000 10,000 -0- -0-
5295 9th Avenue
Delta, B.C.
V4M 1V8
William E. Hodal 40,000 40,000 -0- -0-
7999 Berkley Street
Burnaby, B.C.
V5E 4G5
</TABLE>
Alternate 10
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
Chueh-Hui Hsia 180,000 180,000 -0- -0-
#28, Alley 4, Lane 69
Section 5
Ming-seng E. Road
Taipei, Taiwan
Kimberley L. Kipp 10,000 10,000 -0- -0-
RR #1, Port Stanley
Ontario, N5L 1J1
Amy Lennon 20,000 20,000 -0- -0-
750 Seymour Boulevard
North Vancouver, B.C.
V7J 2J6
Ben Mah 10,000 10,000 -0- -0-
RR1 - 1306 St. Andrews Road
Gibsons, V0N 1V0
Cliff Mah(3) 107,500 130,000 -0- -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3
Jan Mark 10,000 10,000 -0- -0-
110-777 West 7th Avenue
Vancouver, B.C.
V5Z 1B9
Gary Mathiesen 10,000 10,000 -0- -0-
2795 Palmerston Avenue
West Vancouver, B.C.
V7V 2W9
Donald Grant McIntosh 8,000 8,000 -0- -0-
103-3555 Westminister Hwy
Richmond, B.C.
V7C 5P6
James William Milne 10,000 10,000 -0- -0-
831 Forrest Drive
Trail, B.C.
V1R 4P9
Douglas R. Nagely 20,000 20,000 -0- -0-
537-3400 Avenue
Manchester, Kansas
67410-7505
Kent Nuzum(4) 97,500 120,000 -0- -0-
1829 Mapleton Avenue
Boulder, Colorado
80304
</TABLE>
Alternate 11
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
James Oleynick 40,000 40,000 -0- -0-
3581 Haida Drive
Vancouver, B.C.
V5M 3Y9
Opus Capital Fund, LLC 160,000 160,000 -0- -0-
1113 Spruce Street, Suite 506
Boulder, Colorado
80302
Janis Parmar 2,000 2,000 -0- -0-
713 E 4th Street
North Vancouver, B.C.
V7L 1K1
Sera Rhyane 20,000 20,000 -0- -0-
408-620 Avenue Road
Toronto
M4V 2K8
Judith Roker 40,000 40,000 -0- -0-
47 - 15860 82nd Avenue
Surrey, B.C.
V3S 8M4 Canada
John T. Rose 200,000 200,000 -0- -0-
13826 Vintage Centre Drive
Houston, Texas
77069
Robert Sali 19,000 19,000 -0- -0-
2535 West 1st Avenue
Vancouver, B.C.
V6K 1G8
Gregg J. Sedun 10,000 10,000 -0- -0-
2200-885 West Georgia Street
Vancouver, B.C.
V6C 3E8
Edmund Shung 10,000 10,000 -0- -0-
110-1082 West 8th Avenue
Vancouver, B.C.
V6H 1C4
Lawrence D. Smith 10,000 10,000 -0- -0-
5566 49th Avenue
Delta, B.C.
V4K 3N8
William Neal Speight 8,000 8,000 -0- -0-
Box 7, Site 4, RR# 2
Rocky Mountain House
Alberta, T0M 1T0
</TABLE>
Alternate 12
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
Richard Stokes 10,000 10,000 -0- -0-
452 East 7th Street
North Vancouver, B.C.
V7L 1R9
Grant Sutherland 8,000 8,000 -0- -0-
1600-777 Dunsmuir Street
P.O. Box 10425, Pacific Centre
Vancouver, B.C.
V7Y 1K4
Sutton Group Financial Services Ltd. 2,100,000 190,000 1,910,000 24.73%
1628-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Tom Tennessen(5) 77,500 100,000 -0- -0-
4870 Menelith Way #202
Boulder, Colorado
80303
Shelagh Tracey 20,000 20,000 -0- -0-
978 Seymour Boulevard
North Vancouver, B.C.
V7J 2J8
Wallace Development Corp. 8,000 8,000 -0- -0-
938-Howe Street, 11th floor
Vancouver, B.C.
V6Z 3N9
Tanyce Westgard 8,000 8,000 -0- -0-
3295 Canterbury Drive
Surrey, B.C.
V4P 2N4
Grace Wilson 10,000 10,000 -0- -0-
36 Coyne Street
St. Thomas, Ontario
N5R 4K8
Debra Windjack 12,000 12,000 -0- -0-
c/o 2100-111 West Georgia Street
Vancouver, B.C.
V7X 1K9 Canada
Darryl Yea 8,000 8,000 -0- -0-
5294 Keith Road
West Vancouver, B.C.
V7W 2N1
</TABLE>
Alternate 13
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
<S> <C> <C> <C> <C>
Daryl Yurek(6) 525,000 660,000 -0- -0-
1327 Spruce Street, Suite 300
Boulder, Colorado
80302
Jody Yurek 10,000 10,000 -0- -0-
170 Fairview Avenue
St. Thomas, N5R 4Y1
Paul Yurek 10,000 10,000 -0- -0-
50 Lombard Street
Toronto, Ontario
M5C 2X4
TOTAL 6,427,000 2,832,000
</TABLE>
(1)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Akrami is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(2)Excludes 160,000 shares which are deemed to be beneficially owned by Mr.
Heidrich through his position as general partner of the manager of Opus
Capital Fund, LLC, which owns 160,000 shares of E-xact common stock.
(3)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Mah is a 10%
member; (ii) 22,500 shares that may be acquired prior to the initial public
offering by exercise of a warrant held by Bolder Venture Partners, LLC; and
(iii) 22,500 shares that may be acquired upon completion of the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC. Shares Beneficially Owned Pre-Offering excludes warrants to purchase up
to 22,500 shares exercisable after the public offering and expiring five
years from the date the shares are listed for public trading on the Vancouver
Stock Exchange, but Shares Offered in the Offering includes such warrant
shares.
(4)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Nuzum is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(5)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Tennesen is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(6)Includes: (i) 135,000 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Mr.
Yurek is a 10% member; (ii) 135,000 shares that may be acquired prior to the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC; and (iii) 135,000 shares that may be acquired upon completion
of the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC. Shares Beneficially Owned Pre-Offering excludes
warrants to purchase up to 135,000 shares exercisable
Alternate 14
<PAGE>
after the public offering and expiring five years from the date the shares
are listed for public trading on the Vancouver Stock Exchange, but Shares
Offered in the Offering includes such warrant shares. Excludes 160,000 shares
which are deemed to be beneficially owned by Mr. Yurek through his position
as general partner of the manager of Opus Capital Fund, LLC, which owns
160,000 shares.
Alternate 15
<PAGE>
PLAN OF DISTRIBUTION
The common stock offered hereby may be sold from time to time to
purchasers directly by the Selling Stockholders. Alternatively, the Selling
Stockholders may from time to time offer the shares through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the shares for whom they may act as agent. The Selling
Stockholders and any underwriters, dealers or agents that participate in the
distribution of the shares may be deemed to be underwriters and any profit on
the sale of the shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular offer of shares is made, to the extent required, a Prospectus
Supplement will be distributed that will set forth the specific shares to be
sold and the terms of the offering, including the name or names of any
underwriters or dealer agents, any discounts, commissions and other items
constituting compensation from the Selling Stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The shares may be sold from time to time in one or more transactions at a
fixed offering price that may be changed or at varying prices determined at the
time of sale or negotiated prices.
E-xact has paid substantially all of the expenses incident to the offering
of the shares, other than commissions and discounts of underwriters, dealers or
agents and the fees and expenses of counsel to the Selling Stockholders.
USE OF PROCEEDS
E-xact will not receive any of the proceeds from the offering. All of such
proceeds will be received by the Selling Stockholders.
Alternate 16
<PAGE>
Report and Financial Statements of
E-XACT TRANSACTIONS LTD.
June 30, 1999 and December 31, 1998
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS......................F-2
BALANCE SHEETS - June 30, 1999 and December 31, 1998.......................F-3
STATEMENTS OF OPERATIONS - Seven Months Ended June 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-4
STATEMENTS OF CASH FLOWS -Seven Months Ended June 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-5
NOTES TO FINANCIAL STATEMENTS..............................................F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
E-xact Transactions Ltd.
We have audited the balance sheet of E-xact Transactions Ltd. as at December 31,
1998 and the statements of operations, shareholders' capital deficiency and cash
flows for the period from the date of inception, August 13, 1998 to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and the
results of its operations and its cash flows for the period from the date of
inception, August 13, 1998, to December 31, 1998 in accordance with accounting
principles generally accepted in the United States.
Chartered Accountants
Vancouver, British Columbia
August 13, 1999 (except as to Note 14
which is as of October 20, 1999)
Comments by Auditor for U.S. Readers
on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require
the addition of an explanatory 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
shareholders dated August 13, 1999 (except as to Note 14 which is as of
October 20, 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
Vancouver, British Columbia
August 13, 1999 (except as to
Note 14 which is as of October 20, 1999)
<PAGE>
E-XACT TRANSACTIONS LTD.
BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT
Cash $ 19,352 $ 4,502
Accounts receivable (Note 3) 20,611 18,520
Prepaid expenses and deposits 6,296 6,296
Total current assets 46,259 29,318
ACQUIRED SOFTWARE AND INTANGIBLES (Note 4) 12,128 24,258
CAPITAL ASSETS (Note 5) 9,692 2,069
Total assets $ 68,079 $ 55,645
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 7) $ 72,751 $ 32,731
Due to shareholders (Note 6) 123,065 10,605
Total current liabilities 195,816 43,336
COMMITMENTS (Note 11)
SHAREHOLDERS' CAPITAL DEFICIENCY
Common stock, common shares issued and outstanding (Note 8)
4,200,000 at June 30, 1999 and December 31, 1998 64,517 64,517
Accumulated deficit (192,254) (52,208)
Total shareholders' capital deficiency (127,737) 12,309
---------- ---------
Total liabilities and shareholders' capital deficiency $ 68,079 $ 55,645
---------- ---------
CONTINUING OPERATIONS (Note 1)
</TABLE>
See accompanying Notes to the financial statements
F-3
<PAGE>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF OPERATIONS
(EXPRESSED IN CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
From Inception
August 13, 1998
Six Months Ended to December 31,
June 30, 1999 1998
---------------- ---------------
(Unaudited)
REVENUES
Online transactions $ 36,843 $ 22,254
Web development 8,861 20,792
45,704 43,046
COST OF SALES
Cost of online transactions 10,577 7,835
Cost of web development -- 10,052
10,577 17,887
EXPENSES
General and administrative expenses 36,767 39,283
Sales and marketing 6,143 17,719
Research and development 132,263 20,365
175,173 77,367
NET LOSS (140,046) (52,208)
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.01)
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES 4,200,000 3,820,832
USED TO CALCULATE LOSS PER SHARE
See accompanying Notes to the financial statements
F-4
<PAGE>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From Inception
August 13,
Six Months 1998 to
Ended June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (140,046) $ (52,208)
Item not affecting cash
Amortization of capital assets, acquired software and other intangible assets 13,863 40,275
Net change in non-cash working capital balances
Accounts receivable (2,091) (18,520)
Prepaid expenses and deposits -- (6,296)
Accounts payable and accrued liabilities 40,020 32,731
Advances from shareholders -- 10,605
(88,254) 6,587
----------- ----------
FINANCING ACTIVITIES
Advances from shareholders 112,460 --
Proceeds on issuance of capital stock -- 1
112,460 1
--------------- --------------
INVESTING ACTIVITY
Purchase of capital assets (9,356) (2,086)
--------------- --------------
NET CASH INFLOW 14,850 4,502
CASH, BEGINNING OF PERIOD 4,502 --
--------------- --------------
CASH, END OF PERIOD $ 19,352 $ 4,502
--------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION
Common shares issued for acquired software and intangibles $ -- $ 64,517
</TABLE>
See accompanying Notes to the financial statements
F-5
<PAGE>
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total
Shareholders'
Common Stock Accumulated Capital
Shares Amount Deficit Deficiency
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock for cash 42,000 $ 2 $ -- $ 2
Issuance of common stock for acquired
software and intangibles (Note 3) 4,158,000 64,515 -- 64,515
Net loss -- -- (52,208) (52,208)
---------- --------- ----------- -----------
Balance at December 31, 1998 4,200,000 64,517 (52,208) 12,309
Net loss -- -- (140,046) (140,046)
---------- --------- ----------- -----------
Balances at June 30, 1999 $4,200,000 $ 4,200 $ (192,254) $ (127,737)
---------- --------- ----------- -----------
</TABLE>
See accompanying Notes to the financial statements
F-6
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
1. CONTINUING OPERATIONS
The Company specializes in online financial transaction processing
supporting customers' e-commerce activities.
The Company was initially incorporated on August 13, 1998 under the laws of
British Columbia, Canada. On July 29, 1999 the Company was reincorporated
in the State of Delaware.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company incurred a net
loss of $140,046 in the six months period ended June 30, 1999 (period from
inception August 13, 1998 to December 31, 1998 - $52,208) and at June 30,
1999 had a working capital deficiency of $149,557 and capital deficiency of
$127,737.
These factors among others indicate that the Company may be unable to
continue as a going concern for a reasonable period of time. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. The Company's continuation as a going concern
is dependent upon achieving operating levels adequate to support the
Company's cost structure and obtaining adequate financial resources through
a contemplated initial public offering of its shares or otherwise. The
Company expects to have sufficient working capital from the proceeds of the
initial public offering and other contemplated financing to support its
operations during the twelve-month period subsequent to June 30, 1999.
However, there can be no assurance that such offerings will be successful.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the
following significant accounting polices.
(a) 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,
liabilities, revenues and expenses and disclosure of contingent assets
and liabilities at the date of the financial statements and for the
periods presented. Estimates are used for, but not limited to,
accounting for doubtful accounts, amortization, income taxes, and
contingencies. Actual results may differ from those estimates.
(b) Research and development costs
All research and development costs are expensed when incurred.
F-7
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(c) Deferred share issue costs
Share issue costs incurred prior to the issuance of share capital are
deferred and netted against the proceeds when the related shares are
issued.
(d) Acquired software and intangibles
Costs related to acquired software for internal use are capitalized and
are amortized on a straight-line basis over one year, the estimated
period of benefit. Costs related to the acquisition of other rights are
capitalized and are amortized on a straight-line basis in 1998, the
estimated period of benefit. The Company evaluates the recoverability
of its acquired software and intangible assets whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. An impairment loss would be recognized when
estimates of future cash flows expected to result from the use of an
asset and its eventual disposition are less than its carrying amount.
No impairment in assets has been identified by the Company in the
periods ended June 30, 1999 and December 31, 1998.
(e) Capital assets and amortization
Capital assets are recorded at cost and amortized over the estimated
useful lives of the assets on the following basis:
Computer equipment 30% per annum declining balance
The Company periodically evaluates the recoverability of its capital
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimates of future cash flows expected to
result from the use of an asset and its eventual disposition are less
than its carrying amount. No impairment in assets had been identified
by the Company in the periods ended June 30, 1999 and December 31,
1998.
(f) Revenue recognition
The Company's revenue is derived from the following sources:
(i) Online transactions
Revenue from the setup, maintenance, and processing of online
transactions is recognized when the services are performed, the
amount of revenue is determinable and collectibility is reasonably
assured.
F-8
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(f) Revenue recognition (Continued)
(ii) Web development
Revenue from services related to web development are recognized when
the services are performed, the amount of revenue is determinable and
collectibility is reasonably assured. Provision for estimated losses on
contracts is recorded when identified.
(g) Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
the reporting and display of comprehensive income and its components
(revenue, expenses, gains and losses) in a full set of general-purpose
financial statements. The company has no comprehensive income items,
other than the net loss, in any of the periods presented.
(h) Business segments
SFAS No. 131, Disclosures about Segments of an Enterprises and Related
Information, establishes standards for reporting, information about
operating segments in annual financial statements. It also establishes
standards for disclosures about products and services, geographic areas
and major customers. Information related to SFAS No. 131 is contained
in Note 13.
(i) Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use".
This SOP was effective for fiscal years beginning after December 15,
1998. This SOP requires capitalization of certain costs of computer
software developed or obtained for internal use. The adoption of this
statement had no significant effect on the financial position or
results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-up Activities. Under SOP 98-5, the cost of start-up activities
should be expensed as incurred. The company expects that the adoption
of SOP 98-5 will not have a material impact on its financial position
and results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments and hedging activities
SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. The Financial Accounting Standards Board
have subsequently delayed implementation of the standard for the
financial years beginning after June 15, 2000. The impact on the
company's financial statements is not expected to be material.
F-9
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(j) Basic and diluted loss per share
Basic and diluted loss per share is computed by dividing net loss
available to common shareholders by the weighted average number of
common shares outstanding for the period.
(k) Foreign currency translation
Effective July 29, 1999, the Company is a Delaware corporation and
considers the Canadian dollar to be the appropriate functional currency
for the Company's operations because the majority of the Company's
business is in Canada, denominated in Canadian dollars. Monetary assets
and liabilities that are not denominated in Canadian dollars are
translated at the exchange rate on the balance sheet date.
Revenues and expenses are translated using average exchange rates
prevailing during the period. Gains and losses on foreign currency
transactions and translation are recorded in the statements of
operations.
The Company periodically reviews in accordance with SFAS 52 the
determination of its functional currency.
(l) Unaudited interim information
The balance sheet at June 30, 1999 and statement of operations for the
six month period ended June 30, 1999 was taken from the Company's books
and records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal
recurring accruals) which are necessary to properly reflect the
financial position of the Company at June 30, 1999 and the results of
operation for the six months ended June 30, 1999. The results of
operation for the interim periods presented are not necessarily
indicative of those to be expected for the year.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of no allowance for doubtful accounts
at June 30, 1999 and December 31, 1998.
4. ACQUIRED SOFTWARE AND INTANGIBLES
June 30, 1999 December 31, 1998
--------------- -------------------
Acquired software and intangible $ 48,515 $ 48,515
Accumulated amortization (36,387) (24,257)
$ 12,128 $ 24,258
----------- -------------
F-10
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
4. ACQUIRED SOFTWARE AND INTANGIBLES (CONTINUED)
Effective September 1, 1998, the Company entered into an agreement with
Sutton Group Financial Services Ltd. ("Sutton"), a shareholder, under which
the Company purchased all rights, title and interest in and to Version 2 of
the E-xact Gateway software. The consideration paid for this asset,
representing the costs incurred by Sutton in the development of this asset,
consisted of 2,100,000 common shares at a deemed value of $32,515 (Note 8).
At the same time, the Company entered into an agreement with DataDirect
Holdings Inc. ("DataDirect"), a shareholder, under which the Company
acquired intangible assets consisting of the development rights in and to
Version 2 of E-xact Gateway software as well as certain rights and customer
lists. The consideration for these intangibles, representing the costs
incurred by DataDirect in the development of these assets of $16,000 for
the software rights and $16,000 of other intangible assets, consisted of
2,100,000 common shares at a deemed value of $32,000 (Note 8).
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------------------------------- -----------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Computer equipment $ 11,557 $ 1,865 $ 9,692 $ 2,069
------------ ---------- ----------- -------------
$ 11,557 $ 1,865 $ 9,692 $ 2,069
------------ ---------- ----------- -------------
</TABLE>
6. DUE TO SHAREHOLDERS
The amounts due to shareholders are unsecured, non-interest bearing and are
repayable under the Company's normal trade terms.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were
as follows:
June 30, 1999 December 31, 1998
------------- -----------------
Trade payables $ 35,796 $ 17,446
Other accrued liabilities 36,955 15,285
$ 72,751 $ 32,731
----------- -------------
F-11
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
8. SHAREHOLDERS' CAPITAL DEFICIENCY
(a) Authorized share capital
The Company was initially incorporated on August 13, 1998 under the
laws of British Columbia, Canada with 50,000,000 authorized common
shares with no par value. On July 29, 1999 the Company was
reincorporated in the State of Delaware.
The Company has authorized 50,000,000 common shares with a par value of
$0.001 per share. As a result of the reincorporation and change to par
value shares, subsequent to June 30, 1999 $60,317 was reclassified from
common stock to additional paid in capital.
(b) Subsequent to June 30, 1999, on September 2, 1999 the Company's common
shares were split, twenty-one thousand-for-one. All share and per share
amounts of prior periods have been adjusted to reflect the split.
(c) Employee Stock Option Plan
Subsequent to June 30, 1999, on October 7, 1999 the Company's board of
directors approved a stock option plan. Under the plan 20% of the
outstanding shares are for issuance as stock options. The plan is
subject to approval at the next meeting of the shareholders.
9. FINANCIAL INSTRUMENTS
(a) Fair value
The carrying values of cash, accounts receivable, deposits, accounts
payable and accrued liabilities and amounts due to shareholders, as
reflected in the balance sheet, approximate their respective fair
values as at June 30, 1999 and December 31, 1998 because of the demand
or short-term maturity of these instruments.
(b) Credit risk and economic dependence
The Company is subject to credit risk as it earns revenue from a
limited number of customers. Bad debt experience has not been
significant. During the six months ended June 30, 1999 - $31,271
(period from inception August 13, 1998 to December 31, 1998 - $22,135)
of revenue was derived from a single customer. As at June 30, 1999
accounts receivable included $4,855 December 31, 1998 - $5,408 due from
a single customer.
F-12
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(c) Foreign exchange risk
The Company undertakes certain transactions in US dollars and as such
is subject to risk due to fluctuations in exchange rates. The Company
does not use derivative instruments to reduce exposure to foreign
exchange risk.
10. RELATED PARTY TRANSACTIONS
(a) During the six months ended June 30, 1999 the Company paid consulting
fees of $50,000 (1998 - Nil) to a corporate shareholder for research
and development services.
(b) As at June 30, 1999 accounts payable and accrued liabilities include
$41,223 (December 31, 1998 - $6,499 due to a corporate shareholder for
operating costs paid on its behalf.
11. COMMITMENTS
Future minimum operating lease payment for premises and equipment leases
for the years ending December 31 are due as follows:
June 30, 1999 December 31, 1998
------------- -----------------
1999 $ 97,964 $ 62,835
2000 106,565 46,565
2001 28,047 28,047
----------- -------------
$ 232,576 $ 137,447
----------- -------------
12. INCOME TAXES
The reported income tax provision differs from the amount computed by
applying the Canadian basis statutory rate to the loss before income taxes.
The reasons for this difference and the related tax effects are as follows:
June 30, 1999 December 31, 1998
----------- -------------
Canadian basis statutory tax rate 45% 45%
Expected income tax recovery $ (63,021) $ (23,494)
Losses producing no current tax benefit 63,021 23,494
$ -- $ --
----------- -------------
F-13
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income
tax reporting purposes. Significant components of the company's deferred
tax assets and liabilities as of June 30, 1999 and December 31, 1998 are as
follows:
June 30, 1999 December 31, 1998
------------- -----------------
Deferred income tax assets
Net operating tax loss carry forwards
61,500 23,494
Valuation allowance for deferred income
tax asset (61,500) (23,494)
------------ -------------
Net deferred income tax assets -- --
------------
Deferred income tax liabilities -- --
------------ -------------
Due to uncertainty surrounding the realization of the deferred income
tax assets in future income tax returns, the Company has a 100%
valuation allowance against its deferred income tax assets.
As of June 30, 1999, the Company has Canadian tax loss carry-forwards of
approximately $150,000 available to reduce future years' income for tax
purposes. These carry-forward losses expire between 2005 and 2006.
13. SEGMENTED INFORMATION
The Company operates in one segment - electronic commerce services.
The Company attributes revenue among geographical areas based on the
location of the customers. All revenues are derived in Canada. Long-lived
assets include capital assets and are located in Canada.
The Company's customer sales concentration is discussed in Note 9(b).
14. SUBSEQUENT EVENTS
Subsequent to June 30, 1999, the Company:
(a) entered into an agreement with Bolder Venture Partners ("BVP") to have
BVP complete a financing plan which will include an initial private
placement (b), an Initial Public Offering ("IPO") (c), and a Follow-On
Placement. In partial consideration of BVP's services, the Company will
issue BVP warrants to purchase 900,000 shares exercisable for a period
of five years from July 28, 1999, which will vest in four equal
tranches, subject to performance by BVP as follows:-
(i) 25% of the Warrants will be exercisable upon execution by E-xact
of this Agreement, at a price of U.S.$0.25 per share;
F-14
<PAGE>
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(ii) 25% of the Warrants will be exercisable upon completion of the
Initial Placement, at a price per share equal to the private
placement price (estimated to be U.S.$0.50 per share);
(iii)25% of the Warrants will be exercisable upon completion of the
IPO, at a price per share equal to the IPO price (estimated to be
U.S.$1.00 per share); and
(iv) the final 25% of the Warrants will be exercisable immediately upon
completion of the Follow-On Placement, at a price equal to the
private placement price.
The first tranche is not contingent on obtaining financing and
therefore will be accounted for as a compensatory finance fee equal to
the fair market value of the shares on August 28, 1999 less the option
price which approximates $84,000. The remaining tranches will be
accounted for in a similar manner except any difference between the
fair value and the option price will be offset against share capital as
receiving the warrants is contingent on raising the applicable capital.
Under this agreement BVP agreed to serve as corporate and financial
advisors to the Company for a period of twelve months, commencing July
1, 1999 at a rate of $10,000 per month.
(b) was reincorporated in the State of Delaware on July 28, 1999. As a
result of certain changes to the par value of the shares of common
stock, $60,317 was reclassified from common stock to additional paid-in
capital. In addition, this event resulted in a deemed tax year end and
a taxable gain for Canadian tax purposes, based on the excess of the
fair market value of the Company's assets over their related tax cost.
The Company estimates that a provision for Canadian taxes on the
estimated taxable gain, net of available current tax losses of $350,000
will result.
(c) completed a private placement of 1,552,000 common shares for gross
proceeds of $776,000 U.S.; and
(d) filed a preliminary prospectus with the British Columbia Securities
Commission on October 14, 1999 covering the sale of 1,725,000 common
shares for expected gross proceeds of $1,725,000 U.S.
In conjunction with this filing, the Company entered into a Sponsorship
Agreement with Canaccord Capital Corporation ("Canaccord"). Under the
Sponsorship Agreement, the Company has agreed to pay Canaccord a
sponsorship fee of U.S.$10,000, an administrative fee of U.S.$4,000 and
an agent's commission of 7.5% of the gross proceeds. In addition,
Canaccord has been granted a warrant to acquire up to 172,500 shares at
a price of U.S.$1.00 per share, plus 75,000 common shares as a
corporate finance fee.
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Certificate
of Incorporation of E-xact eliminates the liability of directors to E-xact or
its shareholders for monetary damages for breach of fiduciary duty as a
director, except to the extent otherwise required by the Delaware General
Corporation Law.
(b) The Certificate of Incorporation provides that E-xact will indemnify
each person who was or is made a party to any proceeding by reason of the fact
that such person is or was a director or officer of E-xact against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by the Delaware General Corporation
Law. E-xact's Bylaws provide for a similar indemnity to directors and officers
of E-xact to the fullest extent authorized by the Delaware General Corporation
Law.
(c) The Certificate of Incorporation also gives E-xact the ability to enter
into indemnification agreements with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Consultants $ 26,100
Legal Fees $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
------------
$ 202,500
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period from E-xact's incorporation through to the date of this
Prospectus, E-xact has issued the following shares, after giving effect to the
September 2, 1999 stock split of 21,000 to 1:
<TABLE>
<CAPTION>
Number of Price Per Total
Issued Shares Share Consideration
------------- ----------- -------------
<S> <C> <C> <C>
Prior sales:(1) 4,200,000 Cdn. $0.25 Cdn. $1,050,000
1,552,000 U.S. $0.50 U.S. $ 776,000
----------- --------------
Issued as at October 14, 1999: 5,752,000 Cdn. $1,050,000
===========
U.S. $ 776,000
===============
Offering: 1,725,000 U.S. $1.00 U.S. $1,725,000
Corporate Finance Shares 75,000 U.S. $ 75,000
----------- ---------------
To be issued: 1,800,000 U.S. $1,800,000
=========== ===============
</TABLE>
The particulars of these share issuances are as follows:
1. E-xact issued 200 common shares to certain shareholders in consideration
of the transfer of certain assets to the E-xact. These shares were subject
to a 21,000:1 share split effective September 2, 1999. These shares have
been assigned a deemed price of Cdn. $0.25 per share to reflect the
estimated value of the shares as at June 15, 1999.
2. E-xact issued 1,552,000 shares of common stock to a total of 37
individuals at a price of U.S. $0.50 per share to raise seed capital of
$776,000.
3. E-xact issued all presently outstanding shares in exempt transactions
under Section 4(a) of the Securities Act of 1933 and Regulation D, as no
public offering was involved.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ----------- -----------------------------------------------------------------------------------------------
<S> <C>
1 Agency Agreement dated October 13, 1999 between E-xact Transactions Ltd. and Canaccord
Capital Corporation*
3.1 Certificate of Domestication of E-xact Transactions Ltd.*
3.2 Certificate of Incorporation of E-xact Transactions Ltd.*
3.3 Bylaws*
5.1 Legal Opinion of Davis, Graham & Stubbs LLP*
II-2
<PAGE>
<C> <C>
10.1 Sponsorship Agreement dated August 9, 1999 between E-xact Transactions Ltd., Inc.
and Canaccord Capital Corporation*
10.2 Lease dated April 22, 1999 between Harbour Centre Complex Limited as attorney-in-
fact for Lord Realty Holdings Limited and Privest Properties Ltd. (Landlord) and E-xact
Transactions Ltd.*
10.3 Stock Option Plan*
10.4 Letter Agreement dated September 16, 1999 between E-xact Transactions Ltd. And Ted
Henderson.*
10.5 Letter Agreement dated July 28, 1999 between E-xact Transactions Ltd. And Bolder
Venture Partners, LLC.*
10.6 Management Agreement dated April 15, 1999 between DataDirect Holdings, Inc. and
Peter Fahlman, and Robert Roker, and E-xact Transactions Ltd.*
23 Consent of Deloitte & Touche LLP (chartered accountants)*
</TABLE>
- ----------------------
* Filed herewith.
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of E-xact pursuant to E-xact's Bylaws or Certificate of
Incorporation, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant 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, the registrant 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 whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
II-3
<PAGE>
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For purposes of determining any liability under the Securities Act
of 1933, 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 the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(3) For the purpose of determining any liability under the 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.
(4) Remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) To file a post-effective amendment to include any financial
statements required to be filed pursuant to section 210.3-19 at the start of any
delayed offering or throughout a continuous offering.
(6) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, on the 21st day of October, 1999.
E-XACT TRANSACTIONS LTD.
By: /s/Ted Henderson
-------------------------------------
Name: Ted Henderson
Title: President and Chief Executive
Officer
<TABLE>
<CAPTION>
Signatures Title Date
- ------------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
/s/Ted Henderson
- ------------------------------------------- President and Chief October 21, 1999
Ted Henderson Executive Officer
/s/Peter Fahlman Vice-President, October 21, 1999
- ------------------------------------------- Director and Chief
Peter Guy Fahlman Financial Officer
/s/Dieter Heidrich
- ------------------------------------------ Director October 21, 1999
Dieter Heidrich
/s/Lance Tracey
- ------------------------------------------- Director October 21, 1999
Lance Tracey
/s/Cliff Mah
- ------------------------------------------- Director October 21, 1999
Cliff Mah
/s/Paul MacNeill
- ------------------------------------------- Director October 21, 1999
Paul C. MacNeill
</TABLE>
II-5
AGENCY AGREEMENT
October 13, 1999
e-Xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Attention: Peter Fahlman, President
RE: INITIAL PUBLIC OFFERING
Dear Sirs:
We, Canaccord Capital Corporation (the "Agent"), understand that e-Xact
Transactions Ltd. (the "Company") proposes to undertake an initial public
offering to raise gross proceeds of up to US $1,725,000 (the "Offering") through
the sale of common shares of the Company (the "Shares") at a price of US $1.00
per common share (the "Offering Price"). The funds raised from the Offering will
be used for the purpose of, among other things, funding expansion of the
Company's e-commerce software development and marketing. We provide this letter
to confirm the terms and conditions upon which we are prepared to act as your
agent to offer and sell the Shares on your behalf. By signing a copy of this
letter, you are confirming that we have entered into a binding agreement (the
"Agreement") pursuant to which you will have appointed us as your sole and
exclusive agent to use our reasonable best efforts to offer and sell the Shares
on the terms and conditions contained herein.
The additional terms and conditions of this Agreement are set forth below.
1. DEFINITIONS
1.1 In this Agreement, including any schedules forming a part of this
Agreement:
(a) "Acts" means the Securities Acts or equivalent securities regulatory
legislation of the Qualifying Jurisdictions and "Act" means the
Securities Act or equivalent securities regulatory legislation of a
specified Qualifying Jurisdiction;
(b) "Administrative Fee" means an administrative fee of Can. $4,000
payable to the Agent;
(c) "Agent's Commission" means the commission payable to the Agent by the
Company upon the Closing Date for the sale of the Shares, being 7.5%
of the gross proceeds of the Offering, payable in lawful U.S.
currency;
(d) "Agent's Expenses" means the expenses of the Agent incurred on the
Company's behalf in connection with the Offering and the review,
preparation and filing of the Prospectuses, including, without
limitation, the fees and expenses of the Agent's solicitors;
(e) "Agent's Warrant" means a warrant entitling the Agent to purchase
Shares of the Company equivalent to 10% of the number of Shares sold
in the Offering,
<PAGE>
-2-
exercisable in whole or in part during the one year period following
the Listing Date at the Offering Price;
(f) "Agent's Warrant Shares" means the Shares which will issued by the
Company to the Agent upon exercise of the Agent's Warrant;
(g) "Applicable Securities Laws" means in respect of the Offering, the
Acts and Regulations having application and the rules, policies,
notices and orders issued by the applicable Regulatory Authorities
having application;
(h) "Closing Date" means the day 10 business days following the Offering
Day, or such other date as may be agreed upon by the Company and the
Agent for the closing of the Offering;
(i) "Commissions" means the securities regulatory bodies (other than stock
exchanges) of the Qualifying Jurisdictions and "Commission" means the
securities regulatory body of a specified Qualifying Jurisdiction;
(j) "Conditional Listing" has occurred when the Exchange advises that the
common shares of the Company have been conditionally listed;
(k) "Corporate Finance Fee" means a fee of 75,000 common shares of the
Company payable to the Agent by the Company upon the Closing Date;
(l) "Corporate Finance Fee Shares" means the 75,000 Shares of the Company
to be issued by the Company to the Agent in payment of the Corporate
Finance Fee;
(m) "distribution" or ("distribute" as derived therefrom), "material
change", "material fact", "misrepresentation" and "trade" have the
meanings given to those terms in the Securities Act (British
Columbia);
(n) "Effective Date" means the date on which a Final Receipt is issued by
the Commissions of each of the Qualifying Jurisdictions;
(o) "Exchange" means the Vancouver Stock Exchange;
(p) "Final Listing Submission" means the final submission (which will be
in the form of a submission letter and may or may not include a long
form of wrap-around listing application) filed with the Exchange to
secure the Conditional Listing and, upon the satisfaction of those
conditions, to secure the Full Listing;
(q) "Final Prospectus" means the final prospectus filed with the Exchange
and with the Commission for the purpose of qualifying the distribution
of the Qualified Securities;
(r) "Final Receipts" means the receipts issued by each of the Commissions
for the Final Prospectus and "Final Receipt" means the receipt issued
by a specified Commission;
(s) "Full Listing" has occurred when the common shares of the Company have
been listed, and when the issued common shares of the Company have
been called for trading on the Exchange, as evidenced by a notice
issued by the Exchange;
<PAGE>
-3-
(t) "Listing Date" means the day on which the Full Listing occurs;
(u) "Listing Submissions" means the Preliminary Listing Submission and the
Final Listing Submission;
(v) "Offering Day" means the day on which the Agent offers and sells the
Shares through the facilities of, and in accordance with the rules and
policies of the Exchange;
(w) "Preliminary Listing Submission" means the submission (which will be
in the form of a submission letter and may or may not include a long
form or wrap-around listing application) filed with the Exchange to
obtain comfort that the Conditional Listing will be secured;
(x) "Preliminary Prospectus" means the preliminary offering prospectus
filed with the Exchange and with the Commissions for the purpose of
qualifying the distribution of the Qualified Securities in the
Qualifying Jurisdictions;
(y) "Prospectuses" means the Preliminary Prospectus and the Final
Prospectus;
(z) "Purchaser" means a person who subscribes for and purchases some of
the Shares from the Offering;
(aa) "Qualified Securities" means the Shares, the Corporate Finance Fee
Shares, the Agent's Warrant and the Agent's Warrant Shares;
(bb) "Qualifying Jurisdictions" means the Provinces of British Columbia,
Alberta and such offshore jurisdictions as the Agent and the Company
may agree upon;
(cc) "Regulations" means the securities rules or regulations proclaimed
under the Acts and "Regulation" means the securities rules or
regulations proclaimed under a specified Act;
(dd) "Regulatory Authorities" means the Commissions and the Exchange; and
(ee) "Shares" means the 1,725,000 shares of the Company being sold in the
offering;
(ff) "Time of Closing" means at 10:00 a.m. (Vancouver Time) on the Closing
Date.
<PAGE>
-4-
2. NATURE OF THE TRANSACTION
2.1 The Company appoints the Agent as its sole and exclusive agent for the
Offering, and the Agent hereby agrees to act as the exclusive agent of the
Company to use its reasonable best efforts to offer and sell the Shares in
the Qualifying Jurisdictions to potential Purchasers resident in the
Qualifying Jurisdictions.
2.2 If in the opinion of the Agent it is necessary, the Agent will form, manage
and participate in a group of registered securities dealers (the "Selling
Group") to offer and sell the Shares as provided for hereunder. In the
event that a Selling Group is formed, the Agent will manage the Selling
Group to the extent customary in the securities industry in Canada and
require each member of the Selling Group to conduct the Offering on the
terms and conditions set forth in this Agreement. Each member of the
Selling Group shall be appropriately registered under the Applicable
Securities Laws of the Qualifying Jurisdictions in which such member of the
Selling Group offers and sells the Shares so as to permit it to lawfully
offer and sell the Shares in such jurisdiction.
2.3 The Company covenants and agrees with the Agent that it will:
(a) prepare and file with the Commissions under the Applicable Securities
Laws of the Qualifying Jurisdictions, a Preliminary Prospectus,
together with the required supporting documents, to permit the Agent
to solicit expressions of interest for the Offering;
(b) use its reasonable best efforts to address, as expeditiously as
possible, the comments made in respect of the Preliminary Prospectus
by the Commissions;
(c) prepare and file, as soon as practicable after all of the comments
referred to in subparagraph (b) above have been addressed, under the
Applicable Securities Laws of the Qualifying Jurisdictions, the Final
Prospectus, together with the required supporting documents, and use
its reasonable best efforts to obtain the Final Receipt on or before
December 31, 1999 or such other date as agreed to by the Company and
the Agents, and take all other steps and proceedings that may be
necessary in order to qualify, under the Applicable Securities Laws of
the Qualifying Jurisdictions, the distribution of the Qualified
Securities;
(d) prior to the Effective Date, apply to the Exchange for a conditional
listing of its common shares, and prepare and file with the Exchange,
using its reasonable best efforts to do so, a Preliminary Listing
Submission, together with the required supporting documents, to obtain
comfort that the Conditional Listing will be secured;
(e) use its reasonable best efforts to address, as expeditiously as
possible, the comments made in respect of the Preliminary Listing
Submission by the Exchange; and
(f) prepare and file with the Exchange, as soon as practicable after the
Final Receipt for the Final Prospectus has been issued, a Final
Listing Submission, together with the required supporting documents,
to secure, using its reasonable efforts to do so on or before January
15, 2000, the conditional listing and, subsequently, and within the
time required as disclosed in the Final Prospectus, the Full Listing.
<PAGE>
-5-
2.4 Following the Effective Date and after consulting with the Exchange, the
Company and the Agent will set the Offering Day.
2.5 The Offering Day will be on or before the earlier of the day which is:
(a) 90 days after the Effective Date; and
(b) 12 months after the date of issue by the Commission of the preliminary
receipt for the Prospectus.
2.6 The Offering will be made through the facilities of and in accordance with
the rules and policies of the Exchange.
2.7 After the Offering has been completed, the Company and the Agent will file
any documents required by the Exchange in order to remove the conditional
listing and to list and commence trading of the common shares of the Issuer
on the Exchange.
2.8 The Agent will advise the Company and its counsel in writing when the
distribution under the Prospectus is complete.
2.9 The Agent will purchase all of the Shares for which subscriptions have not
been received by the Offering Day. In consideration for the Agent's
guarantee to purchase unsubscribed Shares, the Company will issue the
Agent's Warrant to the Agent, or to members of the Agent's Selling Group as
directed by the Agent. The Agent's Warrant will be exercisable for a period
of one year from the Listing Date at a price equal to the Offering Price.
The form of Agent's Warrant will be provided to the Company by the Agent
and the terms and conditions contained therein will include, among other
things, provisions for the appropriate adjustment in the class, number and
price of the shares to be issued under the Agent's Warrant upon the
occurrence of certain events, including any subdivision, consolidation or
reclassification of the shares, the payment of stock dividends or the
amalgamation of the Company.
2.10 The Company will use its best efforts to assist the Agent in placing the
Shares, and in this regard will provide the Agent with a "President's List"
of all persons, whether brokerage firms, institutional investors or others
who have expressed interest in participating in any financing to be carried
out by the Company, and to direct to the Agent any and all unsolicited
inquiries regarding this Offering. It is agreed that the Agent will have
the right but not the obligation to place the President's List.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 The Company represents and warrants to the Agent, and acknowledges that the
Agent will be relying upon such representations and warranties in entering
into this Agreement, that:
(a) the Company is a valid and subsisting corporation duly incorporated
and in good standing under the laws of the jurisdictions in which it
is incorporated, continued, or amalgamated;
(b) the Company has no subsidiaries;
(c) the authorized and issued share capital of the Company is, and, except
as
<PAGE>
-6-
provided for herein, will be immediately prior to the Time of Closing,
as set forth on Schedule "A" to this Agreement;
(d) the issued shares of the Company (the "Issued Shares") are validly
issued and outstanding fully paid and non-assessable common shares of
the Company registered in the names of, and, to the best of its
knowledge, beneficially owned by, those individuals (the
"Shareholders") as provided for on Schedule "B" to this Agreement,
free and clear of all voting restrictions, trade restrictions, and, to
the best of its knowledge, liens, charges or encumbrances of any kind
whatsoever;
(e) to the best of its knowledge and except as may be disclosed in the
Prospectuses, there are no, nor will there be immediately prior to the
Time of Closing, options, agreements or rights of any kind whatsoever
to acquire all or any part of the Company's Issued Shares or any
interest in them from the Shareholders or any one of them;
(f) except for the Issued Shares, the securities referred to herein and
the securities and agreements described on Schedule "A" hereto, if
any, there are no, nor will there be immediately prior to the Time of
Closing, documents, instruments or other writings of any kind
whatsoever which constitute a "security" (as that term is defined in
the British Columbia Act) of the Company, or agreements of any kind
whatsoever to issue a security;
(g) upon their issuance, the Shares and the Corporate Finance Fee Shares
will be validly issued and outstanding fully paid and non-assessable
common shares of the Company registered in the names of the Purchasers
thereof or the Agent, as the case may be, free and clear of all voting
restrictions, trade restrictions and, except as may be created by the
Purchasers thereof, liens, charges or encumbrances of any kind
whatsoever;
(h) upon its issuance, the Agent's Warrant will be validly created and
issued by the Company and the certificate representing the Agent's
Warrant Shares will, upon delivery by the Company to the Agent,
constitute a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms;
(i) upon the exercise of the Agent's Warrant in accordance with its terms,
the Agent's Warrant Shares issued upon such exercise will be validly
issued and outstanding fully paid and non-assessable common shares of
the Issuer free and clear of all voting restrictions, trade
restrictions and, except as may be created by the purchasers thereof,
any liens, charges or encumbrances of any kind whatsoever;
(j) all of the material transactions of the Company have been promptly and
properly recorded or filed in or with its minute book or records and
the Company's minute book contain all records of the meetings and
proceedings of its directors, shareholders and other committees, if
any, since its incorporation;
(k) the Company holds all material licences and permits required for
carrying on its business in the manner in which such business has been
carried on and has the corporate power and capacity to own the assets
owned by it and, to the best of the Company's knowledge, to carry on
the business carried on by it and is duly qualified to carry on
business in all jurisdictions in which it carries on business;
<PAGE>
-7-
(l) the Company has good and marketable title to its assets free and clear
of all material liens, charges and encumbrances of any kind whatsoever
save and except as will be disclosed in the Prospectuses;
(m) the Company has no trademarks or patents save and except as will be
disclosed in the Prospectuses, such disclosure to include all material
particulars in respect of their registrations and status;
(n) the Company will ensure that any contractor performing work on its
behalf carries insurance for insurable risks and in amounts which are
reasonable with regard to the nature of the work being carried on the
Company's behalf, including but not limited to worker's compensation
insurance and reasonable insurance with respect to public liability,
and that all of the policies in respect of such insurance coverage are
in good standing in all respects and are not in default in any
respects;
(o) the financial statements of the Company which will form part of the
Preliminary Prospectus accurately reflect the financial position of
the Company as at the date of the financial statements and there have
been no adverse material changes in the financial position of the
Company since that date, except as fully and plainly disclosed in the
Prospectus, and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis;
(p) the books and records of the Company disclose all of its material
financial transactions and such transactions have been fairly and
accurately recorded;
(q) except as disclosed in its financial statements or as will be
disclosed in the Prospectuses:
(i) the Company is not indebted to any of its directors, officers or
promoters (collectively the "Principals"), other than in respect
of accrued but unpaid compensation, or to any of the
Shareholders (other than the Principals);
(ii) none of the Principals or Shareholders is indebted or under
obligation to the Company on any account whatsoever; and
(iii) the Company has not guaranteed or agreed to guarantee any debt,
liability or other obligation of any kind whatsoever of any
person, firm or corporation of any kind;
(r) there are no material liabilities of the Company, whether direct,
indirect, absolute, contingent or otherwise which are not disclosed or
reflected in its financial statements except those incurred in the
ordinary course of its business since July 31, 1999;
(s) since July 31, 1999, there has not been any adverse material change of
any kind whatsoever in the financial position or condition of the
Company, or any damage, loss or other change of any kind whatsoever in
circumstances materially affecting its business or assets or the right
or capacity to carry on its business, such business having been
carried on in the ordinary course;
(t) the directors, officers and key employees of the Company and their
compensation
<PAGE>
-8-
arrangements with the Company, whether as directors, officers or
employees of, or as independent contractors or consultants to, the
Company will, if material, be disclosed in the Prospectuses, and,
except as disclosed therein, there will be no pensions, profit
sharing, group insurance or similar plans or other deferred
compensation plans of any kind whatsoever affecting the Company;
(u) all of the material contracts and agreements (collectively the
"Material Contracts") of the Company will be disclosed in the
Prospectuses, such disclosure to provide all material particulars
thereof including the status of those Material Contracts;
(v) all tax returns, reports, elections, remittances and payments of the
Company required by law to have been filed or made, have been filed or
made (as the case may be) and are substantially true, complete and
correct and all taxes of the Company have been paid or they have been
accrued in the Financial Statements;
(w) the Company:
(i) has been assessed for all applicable taxes and has received all
appropriate refunds;
(ii) has made adequate provision for taxes payable for the current
period for which tax returns are not yet required to be filed;
and
(iii) is not aware of any contingent tax liability of the Company;
(x) to the best of its knowledge, the Company has not:
(i) made any election under Section 85 of the Income Tax Act
(Canada) (the "Tax Act") with respect to the acquisition or
disposition of any property except as has been disclosed by
the Company to the Agent; or
(ii) acquired any property from a non-arm's length person with whom
it was not dealing with at arm's length for proceeds greater
than the fair market value thereof, or disposed of anything to a
non-arm's length person for proceeds less than the fair market
value thereof;
(y) to the best of its knowledge, there are no actions, suits, judgments,
investigations or proceedings of any kind whatsoever outstanding,
pending or threatened against or affecting the Company or its
Principals, at law or in equity or before or by any Federal,
Provincial, Municipal or other governmental department, commission,
board, bureau or agency of any kind whatsoever and, to the best of its
knowledge, there is no basis therefor;
(z) to the best of its knowledge, the Company and its Principals are not
in breach of any law, ordinance, statute, regulation, by-law, order or
decree of any kind whatsoever;
(aa) the Company has good and sufficient right and authority to enter into
this Agreement and complete its transactions contemplated under this
Agreement on the terms and conditions set forth herein; and
<PAGE>
-9-
(bb) to the best of its knowledge, the execution and delivery of this
Agreement, the performance of its obligations under this Agreement and
the completion of its transactions contemplated under this Agreement
will not conflict with, or result in the breach of or the acceleration
of any indebtedness under, or constitute default under, the constating
documents of the Company or any indenture, mortgage, agreement, lease,
licence or other instrument of any kind whatsoever to which the
Company is a party or by which it is bound, or any judgment or order
of any kind whatsoever of any Court or administrative body of any kind
whatsoever by which it is bound.
3.2 The representations and warranties of the Company contained in this
Agreement shall be true at the Time of Closing as though they were made at
the Time of Closing and they shall survive the completion of the
transactions contemplated under this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE AGENT
4.1 The Agent represents and warrants to the Company, and acknowledges that the
Company will be relying upon such representations and warranties in
entering into this Agreement, that:
(a) the Agent holds all licences and permits that are required for
carrying on its business in the manner in which such business has been
carried on and the Agent has the corporate power and capacity to carry
on the business carried on by it and the Agent is duly qualified to
carry on business in the Qualifying Jurisdictions;
(b) the Agent has good and sufficient right and authority to enter into
this Agreement and complete its transactions contemplated under this
Agreement on the terms and conditions set forth herein;
(c) the Agent is, and will remain so until the completion of the
Offering, appropriately registered under Applicable Securities Laws
so as to permit it to lawfully fulfil its obligations hereunder and
the Agent is, and will remain so until the completion of the
Offering, a member in good standing of the Exchange; and
(d) the Agent will fulfil all legal requirements (including, without
limitation, compliance with Applicable Securities Laws) to be
fulfilled by it to act as the Company's agent in undertaking the
Offering in the Qualifying Jurisdictions.
4.2 The representations and warranties of the Agent contained in this
Agreement shall be true at the Time of Closing as though they were made at
the Time of Closing and they shall survive the completion of the
transactions contemplated under this Agreement.
5. ADDITIONAL COVENANTS OF THE COMPANY
5.1 The Company covenants and agrees with the Agent that it will:
(a) with respect to the filing of the Prospectuses as contemplated herein,
fulfil all legal requirements to be fulfilled by the Company in
connection therewith, in each case in form and substance satisfactory
to the Agent as evidenced by the Agent's execution of the certificates
attached thereto;
(b) prior to the filing of each of the Prospectuses, allow the Agent to
review each
<PAGE>
-10-
Prospectus and conduct all due diligence which the Agent may
reasonably require in order to fulfil its obligations as a statutory
underwriter and in order to enable it to execute, acting prudently and
responsibly, the certificates required to be executed by the Agent in
such documents;
(c) during the period prior to the completion of the Offering, promptly
notify the Agent in writing of any material change (actual or
proposed) in the business, affairs, operations, assets or liabilities
(contingent or otherwise) or capital of the Company, or of any change
which is of such a nature as to result in a misrepresentation in
either of the Prospectuses or any amendment thereto and:
(i) the Company will, within any applicable time limitation, comply
with all filing and other requirements under the Applicable
Securities Laws of the Qualifying Jurisdictions, and with the
rules of the Exchange, applicable to the Company as a result of
any such change; and
(ii) notwithstanding the foregoing, the Company will not file any
amendment to the Prospectuses or any other material supplementary
to the Prospectuses (all such amendments and material being the
"Supplementary Material") without first obtaining the approval of
the Agent as to the form and content thereof, which approval will
not be unreasonably withheld and which will be provided in a
timely basis;
and, in addition to the foregoing, the Company will, in good faith,
discuss with the Agent any change in circumstances (actual or
proposed) which is of such a nature that there is or ought to be
consideration given by the Company as to whether notice in writing of
such change need be given to the Agent pursuant to this subparagraph.
(d) deliver to the Agent duly executed copies of any Supplementary
Material required to be filed by the Company in accordance with
subparagraph (c) above and if any financial or accounting information
is contained in any of the Supplementary Material, an additional
Comfort Letter to that required by subparagraph (h)(i) below;
(e) from time to time and without charge to the Agent, deliver to the
Agent as many copies of each of the Prospectuses and any amendments
thereto, if any, as the Agent may reasonably request, and such
delivery will constitute the Company's consent to the Agent's use of
the documents in connection with the Offering;
(f) by the act of having delivered each of the Prospectuses and any
amendments thereto to the Agent, have represented and warranted to the
Agent that all material information and statements (except information
and statements relating solely to the Agent) contained in such
documents, at the respective dates of initial delivery thereof, comply
with the Applicable Securities Laws of the Qualifying Jurisdictions
and are true and correct in all material respects, do not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading, and that such
documents, at such dates, contain no misrepresentation and together
constitute full, true and plain disclosure of all material facts
relating to the Company as required by the Applicable Securities Laws
of the Qualifying Jurisdictions;
<PAGE>
-11-
(g) with respect to the filing of the Listing Submissions as contemplated
herein, fulfil all of the requirements of the Exchange required to be
fulfilled by the Company in connection therewith;
(h) deliver to the Agent:
(i) at the time of execution of the Final Prospectus by the Agent, a
comfort letter (the "Comfort Letter") of the Company's auditors
addressed to the Agent and to the directors of the Company and
dated as of the date of the Final Prospectus, in form and content
acceptable to the Agent, acting reasonably, relating to the
verification of the financial information and accounting data
contained in the Final Prospectus and to such other matters as
the Agent may reasonably require, which Comfort Letter will be
based upon a review of the auditors having a cut-off date not
more than two business days prior to the date of the Final
Prospectus and shall be in addition to any comfort letter which
must be filed with the Regulatory Authorities;
(ii) at the time of the execution of the Final Prospectus by the Agent
and, if requested by the Agent, at the Time of Closing as well,
such legal opinions (the "Legal Opinions") of the Company's
various legal counsel, addressed to the Agent and its legal
counsel and dated as of the date in question, in form and content
acceptable to the Agent, acting reasonably relating to the Final
Prospectus and the Final Listing Submission, the trade and
distribution of the Qualified Securities and to such other
matters as the Agent may reasonably require;
(iii) at the time of the execution of the Final Prospectus by the
Agent and, if requested by the Agent, at the Time of Closing as
well, a certificate (the "Officers' Certificate") of the Company,
addressed to the Agent and its legal counsel and dated as of the
date in question, in form and content acceptable to the Agent,
acting reasonably, relating to the Final Prospectus and the Final
Listing Submission, the trade and distribution of the Qualified
Securities and to such other matters as the Agent may reasonably
require; and
(iv) at the time of the execution of the Final Prospectus by the Agent
and, if requested by the Agent, at the Time of Closing as well,
such other materials (the "Closing Materials") as the Agent may
reasonably require and as are customary in a transaction of this
nature, and the Closing Materials will be addressed to the Agent
and to such parties as may be reasonably directed by the Agent
and will be dated as of the date in question or such other date
as the Agent may reasonably require; and
(i) from and including the date of this Agreement through to and including
the completion of the Offering, do all such acts and things reasonably
necessary to ensure that all of the representations and warranties of
the Company contained in this Agreement or any certificates or
documents delivered by it pursuant to this Agreement remain materially
true and correct and not do any such act or thing that would render
any representation or warranty of the Company contained in this
Agreement or any certificates or documents delivered by it to this
Agreement materially untrue or incorrect.
<PAGE>
-12-
6. ADDITIONAL COVENANTS OF THE AGENT
6.1 The Agent covenants and agrees with the Company that it will:
(a) upon being satisfied, acting reasonably, that each of the Prospectuses
and any amendments thereto is in a form satisfactory for filing with
the Exchange and the Commissions execute each of the Prospectuses and
any amendments thereto, as the case may be, presented to the Agent for
execution, and the Agent will use its reasonable best efforts to
assist the Company in obtaining the requisite approvals of the
Regulatory Authorities in connection with the preparation and filing
of such documents;
(b) use its reasonable best efforts to complete the distribution of the
Shares as soon as reasonably practicable after the issuance of the
Final Receipts; and
(c) within five business days of the Offering Day and, in any event, prior
to the Time of Closing, provide to the Company and to the Exchange a
letter confirming that the Exchange's initial distribution
requirements have been met.
7. CONDITIONS PRECEDENT
7.1 The following are conditions to the obligations of the Agent to complete
the transactions contemplated in this Agreement:
(a) all actions required to be taken by or on behalf of the Company,
including the passing of all requisite resolutions of directors of the
Company, will have been taken so as to approve the Prospectuses and to
validly allot, issue, grant, sell and deliver, as applicable, the
Qualified Securities and, if applicable, any common shares that may be
issued on the exercise of any of the Qualified Securities, and to such
other matters as the Agent may reasonably require;
(b) if required by the Regulatory Authorities or by the Agent, certain of
the Company's shareholders (including founders, management and certain
investors) will have entered into any pooling or escrow agreements
required by the Regulatory Authorities or by the Agent in connection
with the transactions contemplated herein;
(c) the Company will have made all necessary filings with and obtained all
necessary approvals, consents and acceptances of the Regulatory
Authorities for the Prospectuses, the Listing Submissions and to
permit the Company to complete its obligations hereunder;
(d) the Conditional Listing will have been secured;
(e) the Company will have, within the required time, delivered the
required Comfort Letters, Legal Opinions, Officers' Certificates and
other Closing Materials as the Agent may reasonably require;
(f) no order ceasing or suspending trading in any securities of the
Company, or ceasing or suspending trading by the directors, officers
or promoters of the Company, or any one of them, or prohibiting the
trade or distribution of any of the securities referred to herein will
have been issued and no proceedings for
<PAGE>
-13-
such purpose, to the knowledge of the Company, will be pending or
threatened;
(g) the Company will have, as of the time of Closing, complied with all of
its covenants and agreements contained in this Agreement;
(h) the representations and warranties of the Company contained in this
Agreement will be true and correct as of the Time of Closing as if
such representations and warranties had been made as of the Time of
Closing; and
(i) no material adverse changes having occurred to the Company, its
principals, business or offices prior to Closing.
8. AGENT'S FEES AND EXPENSES
8.1 In consideration of the services to be rendered by the Agent to the Company
hereunder, the Company agrees to pay the Agent, at the time and in the
manner specified herein, the Agent's Commission, the Corporate Finance Fee,
the Agent's Warrant and the Administrative Fee.
8.2 The Company will pay all of the Agent's Expenses in relation to the
transactions contemplated herein including, without limitation, the
reasonable fees and expenses of the Agent's solicitors, which barring any
extraordinary circumstances, will not exceed $35,000. The Agent will
instruct its solicitors to prepare monthly cumulative statements of
expenses, and will provide them to the Company. Any potential fees and
expenses of the Agent's solicitors in excess of $35,000 will be discussed
by the Company and the Agent before such fees and expenses are incurred.
8.3 The Company will pay the Agent's Expenses and the Administrative Fee even
if the transactions contemplated herein are not completed or this Agreement
is terminated, unless the failure of completion or the termination is the
result of the breach of this Agreement by the Agent.
8.4 The Agent may, from time to time, render, or cause to be rendered, to the
Company, accounts for the Agent's Expenses and the Company will pay those
accounts on or before the dates set out therein.
8.5 The Corporate Finance Fee Shares to be issued in payment of the Corporate
Finance Fee will be validly created, issued and outstanding common shares
of the Company registered in the name of the Agent (or as the Agent may so
direct), free and clear of all voting restrictions, trade restrictions and,
except as may be created by the holders thereof, liens, charges or
encumbrances of any kind whatsoever. The Company will qualify the
distribution of the Corporate Finance Fee Shares under the Final Prospectus
to the extent permitted by the Regulatory Authorities.
8.6 The fees and expenses set out in this Part 8 of the Agreement are in
addition to the sponsorship fee of US $10,000 plus G.S.T. and related
expenses which are to be paid by the Company to the Agent pursuant to a
Sponsorship Agreement dated August 9, 1999 between the Company and the
Agent (the "Sponsorship Fee").
9. CLOSING
9.1 In this Section:
<PAGE>
-14-
(a) "Certificates" means the certificates representing the Shares in the
names and denominations reasonably requested by the Agent and the
certificates representing the Corporate Finance Fee Shares and the
Agent's Warrant;
(b) "Proceeds" means the gross proceeds of the Offering, less:
(i) the Agent's Commission;
(ii) the Administrative Fee;
(iii) any unpaid portion of the Agent's Expenses;
(iv) any amount which has been attached by garnishing order or other
form of attachment; and
(v) any amount already received by the Company.
9.2 The Company will, on the Closing Date, deliver through its registrar and
transfer agent, to the Agent the Certificates against payment of the
Proceeds.
9.3 If the Company has satisfied all of its obligations under this Agreement,
the Agent will, on the Closing Date, pay the Proceeds to the Company
through its registrar and transfer agent, against delivery of the
Certificates.
9.4 The obligation of the Agent to pay the Proceeds to the Company shall be
subject to the following conditions precedent:
(a) the Company shall have performed or complied with each covenant and
obligation herein provided on its part to be performed or complied
with;
(b) each of the representations and warranties of the Company herein shall
continue to be true, and the Officer's Certificate shall contain
certification to that effect;
(c) the Company shall have made, within the time limited, each of the
deliveries provided for herein; and
(d) the Company shall have, to the satisfaction of the Agent's counsel,
taken or caused to be taken all steps and proceedings which may be
required under the Act to qualify the distribution of the Shares to
the public in British Columbia through registrants who have complied
with the provision of the Act including the filing and obtaining of
receipts for the Prospectus.
9.5 The closing of the transactions contemplated under this Agreement (the
"Closing") will be completed at the offices of Campney & Murphy, Suite 2100
- 1111 West Georgia Street, Vancouver, B.C., at the Time of Closing on the
Closing Date.
9.6 The Company acknowledges that the Agent is not the agent of the Purchasers
and that by agreeing to serve as the Company's agents for the purpose of
filing the Prospectuses it in no way assumes any liability to the
Purchasers.
9.7 Nothing in this Agreement shall prevent the parties from agreeing to amend
any of the terms or conditions of this Part 9 of the Agreement should they
mutually agree in writing to do so.
<PAGE>
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10. INDEMNITY
10.1 The Company agrees to indemnify and hold harmless the Agent and each of
the Agent's directors, officers, employees, agents and advisors and its
subsidiaries and each of their respective directors, officers, employees,
agents and advisors (collectively the "Indemnified Persons") against all
losses, claims, costs, damages or liabilities (collectively the "Losses")
whether joint or several, (including the aggregate amount paid in
reasonable settlement of any such actions, suits, proceedings or claims),
and the reasonable fees and expenses of counsel that may be incurred in
advising with respect to and/or defending any claim to which any
Indemnified Person may become subject or otherwise involved in any
capacity under any statute or common law or otherwise insofar as such
Losses arise out of or are based, directly or indirectly, upon the
performance of services in connection or relating to the services provided
by the Agent hereunder, except to the extent that such Losses result from
the Agent's gross negligence or bad faith in performing such services. The
Losses include but are not limited to Losses caused by or arising directly
or indirectly by reasons of:
(a) an untrue statement (or a statement alleged to be untrue) contained
in the Prospectuses, the Listing Submissions, any amendments
thereto, or other written or oral representation made by the Company
to a Purchaser or potential Purchaser of the Shares or by reason of
the omission to state any fact necessary to make statements not
misleading (except for information and statements referring solely
to the Agent);
(b) the failure by the Company to obtain the requisite approvals,
consents and acceptances of the Regulatory Authorities for the
Prospectuses, Listing Submissions and the Offering;
(c) a material breach by the Company of any of the terms of this
Agreement;
(d) any representation or warranty made by the Company herein being
materially untrue or ceasing, in a material way, to be true prior to
the Time of Closing;
(e) any order made by any regulatory authority that trading in or
distribution of any of the Company's securities is to cease or be
suspended, or that trading by the directors, officers or promoters
of the Company, or any one of them, shall cease or be suspended,
including an order prohibiting the trade or distribution of any of
the securities referred to herein;
(f) the failure or inability of the Company to allot, issue and deliver
any or all of the certificates representing the Shares, the
Corporate Finance Fee Shares, the Agent's Warrant and the Agent's
Warrant Shares as the Agent may reasonably require for the
completion of the transactions referred to herein; and
(g) a determination made by any competent authority setting aside the
trade or distribution of any of the securities referred to herein.
10.2 If any matter contemplated by paragraph 10.1 is asserted in any action or
claim against any one or more of the Indemnified Persons in respect of
which matter indemnity may be sought against the Company pursuant to this
Agreement, or any potential action or claim comes to their knowledge, the
Indemnified Person will notify the Company as soon as possible in writing
of the nature of the action or claim and the Company will be
<PAGE>
-16-
entitled to (but not required to) assume the defence of that action or
claim, including the employment of legal counsel (satisfactory to the
Indemnified Person, acting reasonably) and assume payment of the expenses
in relation thereto. Each Indemnified Person will have the right to employ
separate legal counsel in any action or claim and to participate in the
defence thereof, but the fees and expenses of that counsel will be at the
expense of the Indemnified Person and not of the Company unless:
(a) the employment of that legal counsel has been specifically
authorized in writing by the Company in connection with the defence
of the action or claim;
(b) the Company has not, within five business days after having received
written notice of the action or claim from the Indemnified Person,
employed legal counsel to have conduct of the defence of the action
or claim; or
(c) the named parties to any action or claim (including any added, third
or impleaded parties) include both the Indemnified Person and the
Company, and such Indemnified Person has been advised by counsel
that there may be defences available to the Indemnified Person which
are different from or additional to those available to the Company
(in which case the Company will not have the right to assume or
direct the defence of action or claim on behalf of the Indemnified
Person).
10.3 Notwithstanding the foregoing, no settlement may be made by the
Indemnified Person concerned without the prior written consent of the
Company which consent will not be unreasonably withheld.
10.4 The Company will not make any claim for, and hereby irrevocably waives any
right of statute or common law to, contribution against the Agent or any
of the Agent's directors, officers, employees, agents or solicitors in the
event of any action or claim brought against the Company as a result of
any misrepresentation or alleged misrepresentation other than a
misrepresentation or alleged misrepresentation relating solely to the
Agent.
10.5 The right to indemnity herein provided will be in addition to and not in
derogation of any other right to indemnity or contribution which any
Indemnified Person may have by statute or otherwise at law.
10.6 The indemnity provided by this Agreement will remain in full force and
effect until all possible liability of the Agent arising out of the
transactions contemplated by this Agreement is extinguished by the
operation of law and will not be limited to or affected by any other
indemnity obtained by the Agent from any other person.
<PAGE>
-17-
11. TERMINATION OF AGREEMENT
11.1 In addition to any other remedies which may be available to the Agent,
this Agreement may be terminated by the Agent at any time up to the Time
of Closing in the event that:
(a) an adverse material change in the affairs of the Company occurs or
is announced by the Company;
(b) there should develop, occur, or come into effect any catastrophe of
national or international consequences or accident, governmental
law, or regulation or other occurrence of any nature which, in the
opinion of the Agent, seriously affect the financial markets or the
business of the Company or any subsidiary of the Company or the
ability of the Agent to perform its obligations under this
Agreement;
(c) the Shares cannot, in the opinion of the Agent, be profitably sold
due to the state of the financial markets generally;
(d) any order to cease or suspend trading in any of the securities of
the Company, including an order which would prohibit the trade or
distribution of any of the securities referred to herein, or an
order to cease or suspend trading by a director, officer or promoter
of the Company, or any one of them, is issued by any competent
regulatory authority;
(e) the Company is in material breach of any term of this Agreement;
(f) the Agent determines that any of the representations or warranties
made by the Company in this Agreement are materially false or have
become materially false;
(g) an inquiry or investigation (whether formal or informal) in relation
to the Company, or the Company's directors, officers or promoters,
is commenced or threatened by an officer or official of any
competent authority; or
(h) the Final Receipt for the Final Prospectus has not been obtained on
or before December 31, 1999, the Conditional Listing has not been
obtained on or before January 15, 2000, or the Full Listing has not
been obtained within the time required by the Regulatory Authorities
as disclosed in the Final Prospectus.
The right of the Agent to terminate this Agreement is in addition to
such other remedies a Purchaser may have in respect of any default,
misrepresentation, act or failure to act of the Company in respect
of any of the transactions contemplated by this Agreement.
11.2 Any such termination shall be effected by notice in writing to the Company
at any time prior to the Time of Closing. In the event that the Agent
terminates this Agreement after having been paid the Agent's Commission,
it will repay the Agent's Commission (but not the Agent's Expenses) to the
Company forthwith.
<PAGE>
-18-
11.3 The Company may cancel this Agreement at any time prior to the Offering
Date upon payment to the Agent of Can. $50,000 plus payment in full of the
Administrative Fee, the Sponsorship Fee and any unpaid Agent's Expenses.
12. GENERAL
12.1 Time and each of the terms and conditions of this Agreement shall be of
the essence of this Agreement and any waiver by the parties of this
paragraph 12.1 or any failure by them to exercise any of their rights
under this Agreement shall be limited to the particular instance and shall
not extend to any other instance or matter in this Agreement or otherwise
affect any of their rights or remedies under this Agreement.
12.2 The Schedules to this Agreement incorporated by reference and the recitals
to this Agreement constitute a part of this Agreement.
12.3 This Agreement constitutes the entire Agreement between the parties hereto
in respect of the matters referred to herein and there are no
representations, warranties, covenants or agreements, expressed or
implied, collateral hereto other than as expressly set forth or referred
to herein.
12.4 The headings in this Agreement are for reference only and do not
constitute terms of the Agreement.
12.5 The provisions contained in this Agreement which, by their terms, require
performance by a party to this Agreement subsequent to the Closing Date of
this Agreement shall survive the Closing Date of this Agreement.
12.6 No alteration, amendment, modification or interpretation of this Agreement
or any provision of this Agreement shall be valid and binding upon the
parties hereto unless such alteration, amendment, modification or
interpretation is in written form executed by the parties hereto.
12.7 Whenever the singular or masculine is used in this Agreement the same
shall be deemed to include the plural or the feminine or the body
corporate as the context may require.
12.8 The parties hereto shall execute and deliver all such further documents
and instruments and do all such acts and things as any party may
reasonably require in order to carry out the full intent and meaning of
this Agreement including, without limitation, any such document and
instruments or acts and things as are required to effect the Offering.
12.9 This Agreement may not be assigned by any party hereto without the prior
written consent of all of the parties hereto.
12.10 This Agreement shall be subject to, governed by, and construed in
accordance with the laws of the Province of British Columbia and the laws
of Canada applicable therein.
<PAGE>
-19-
12.11 This Agreement may be signed by the parties in as many counterparts as may
be deemed necessary and by facsimile transmission, each of which so signed
shall be deemed to be an original, and all such counterparts together
shall constitute one and the same instrument.
12.12 Any notice to be given hereunder will be in writing and may be given by
telecopier or by hand delivery and will, in the case of notice to the
Company, be addressed and telecopied or delivered to:
e-Xact Transactions Ltd.
1610 - 555 Hastings Street
Vancouver, B.C.
V6B 4N6
ATTENTION: Peter Fahlman, President
Tel: (604) 691-1672
Fax: (604) 691-1678
with a copy to:
Campney & Murphy
2100 - 1111 West Georgia Street
Vancouver, British Columbia
V7X 1K9
ATTENTION: Kevin Hisko
Tel: (604) 661-7683
Fax: (604) 688-0829
and in the case of the Agent, be addressed and telecopied or delivered
to:
Canaccord Capital Corporation
Stock Exchange Tower
2200 - 609 Granville Street
Vancouver, British Columbia
V7Y 1H2
ATTENTION: Larry O'Brien
Tel: (604) 643-7784
Fax: (604) 643-7689
<PAGE>
-20-
with a copy to:
Stikeman, Elliott
Suite 1700, Park Place
666 Burrard Street
Vancouver, British Columbia
V6C 2X8
ATTENTION: Neville McClure
Tel: (604) 631-1324
Fax: (604) 681-1825
The Company and the Agent may change their respective addresses for notice
by notice given in the manner referred to above.
If the foregoing is in accordance with your understanding and agreed to by you,
please signify your acceptance on the accompanying counterpart of this letter
and return same to the Agent whereupon this letter as so accepted will
constitute an agreement between the Company and the Agent enforceable in
accordance with its terms.
Yours truly,
CANACCORD CAPITAL CORPORATION
Per: /s/ Not Legible
-------------------------------------
Authorized Signatory
The foregoing is accepted and agreed to on the 14th day of October, 1999,
effective as of the date appearing on the first page of this Agreement.
Yours truly,
E-XACT TRANSACTIONS LTD.
Per: /s/ Ted Henderson
--------------------------------------
Authorized Signatory
<PAGE>
===============================================================================
SCHEDULE "A" TO THE AGENCY AGREEMENT
MADE BETWEEN E-XACT TRANSACTIONS LTD.
AND CANACCORD CAPITAL CORPORATION
FULLY DILUTED SHARE CAPITAL
===============================================================================
<PAGE>
===============================================================================
SCHEDULE "B" TO THE AGENCY AGREEMENT
MADE BETWEEN E-XACT TRANSACTIONS LTD.
AND CANACCORD CAPITAL CORPORATION
SHAREHOLDERS' LIST
===============================================================================
CERTIFICATE OF DOMESTICATION
OF
E-XACT TRANSACTIONS LTD.
E-xact Transactions Ltd. (the "Corporation"), a corporation
organized and existing under the laws of British Columbia, Canada, does hereby
certify as follows:
FIRST: the Corporation was first formed on the 13TH day of AUGUST,
1998, in British Columbia, Canada.
SECOND: the name of the Corporation immediately prior to the filing
of this Certificate of Domestication was E-xact Transactions Ltd.
THIRD: the name of the Corporation under which it is filing a
Certificate of Incorporation is E-xact Transactions Ltd.
FOURTH: the principal place of business of the Corporation
immediately prior to the filing of this Certificate of Domestication was British
Columbia, Canada.
FIFTH: a Certificate of Incorporation of E-xact Transactions Ltd. is
being filed contemporaneously with this Certificate of Domestication.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Domestication to be signed by PETER FAHLMAN, its PRESIDENT, who is authorized to
sign this Certificate of Domestication on behalf of the Corporation, this 22nd
day of July, 1999.
E-XACT TRANSACTIONS LTD.
By: /s/ NOT LEGIBLE
----------------------------------
Name:
Title:
CERTIFICATE OF INCORPORATION
OF
E-XACT TRANSACTIONS LTD.
ARTICLE 1
The name of the corporation is E-xact Transactions Ltd. (the
"Corporation").
ARTICLE 2
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE 3
The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any business and in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law (the "GCL") and to possess and employ all powers and privileges
now or hereafter granted or available under the laws of the State of Delaware to
such corporations.
ARTICLE 4
Section 4.1 AUTHORIZED SHARES. The total number of shares that the
Corporation shall have authority to issue is 50,000,000, all of which shall be
designated common stock, with a par value of $0.001 per share.
Section 4.2 COMMON STOCK. Each holder of common stock shall be
entitled to one vote for each share of common stock held on all matters as to
which holders of common stock shall be entitled to vote. Except as may be
provided by the laws of the State of Delaware, the holders of common stock shall
have exclusively all other rights of stockholders of the Corporation, including,
but not by way of limitation: (i) the right to receive dividends, when, as and
if declared by the board of directors out of assets lawfully available therefor
and (ii) in the event of any distribution of assets upon the dissolution and
liquidation of the Corporation, the right to receive ratably and equally all of
the assets of the Corporation.
<PAGE>
ARTICLE 5
Section 5.1 NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed from time to time in the manner provided in the
bylaws and may be increased or decreased from time to time in the manner
provided in the bylaws.
Section 5.2 ELECTION AND TERM. Election of directors need not be by
written ballot except and to the extent provided in the bylaws of the
Corporation.
Section 5.3 VACANCIES. Newly created directorships resulting from
any increase in the number of directors and any vacancies on the board of
directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office or a sole remaining director, even if less
than a quorum of the board of directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the new directorship which was created or in which the vacancy occurred and
until such director's successor shall have been elected and qualified.
ARTICLE 6
The board of directors of the Corporation is expressly authorized to
make, alter, or repeal the bylaws of the Corporation, but such authorization
shall not divest or limit the stockholders' power to adopt, amend or repeal
bylaws.
ARTICLE 7
Section 7.1 SPECIAL MEETINGS. Except as otherwise required by law,
special meetings of the stockholders may be called only by the chairman of the
board of directors, the president, a vice president or the board of directors
pursuant to a resolution approved by a majority of the entire board of directors
or a sole remaining director.
ARTICLE 8
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except as to liability for: (i) any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) violations of Section 174 of the GCL or (iv) any transaction from
which the director derived any improper personal benefit. If the GCL hereafter
is amended to eliminate or limit
- 2 -
<PAGE>
further the liability of a director, then, in addition to the elimination and
limitation of liability provided by the preceding sentence, the liability of
each director shall be eliminated or limited to the fullest extent provided or
permitted by the amended GCL. Any repeal or modification of this Article shall
not adversely affect any right or protection of a director under this Article,
as in effect immediately prior to such repeal or modification, with respect to
any liability that would have accrued, but for this Article, prior to such
repeal or modification.
ARTICLE 9
Section 9.1 GENERAL. The Corporation shall indemnify, to the fullest
extent permitted by applicable law as from time to time may be in effect, any
person against all liability and expense (including, but not limited to,
attorneys' fees and settlement costs) incurred by reason of the fact that he is
or was a director or officer of the Corporation, or while serving as a director
or officer of the Corporation, he is or was serving at the request of the
Corporation as a director, officer, partner or trustee of, or in any similar
managerial or fiduciary position of, or as an employee or agent of, another
corporation, partnership, joint venture, trust, association or other entity, or
by reason of any action alleged to have been taken or omitted in such capacity.
Expenses (including attorneys' fees) incurred in defending an action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding to the fullest extent and under the
circumstances permitted by the laws of the State of Delaware. The right to
indemnification conferred upon such persons by this Article 9 shall be a
contract right. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, fiduciary or agent of
the Corporation against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have the power to indemnify against such liability
under the provisions of this Article. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under this Certificate of Incorporation, any bylaw,
agreement, vote of stockholders or disinterested directors, statute or otherwise
and shall inure to the benefit of their heirs, executors and administrators. The
provisions of this Article shall not be deemed to preclude the Corporation from
indemnifying other persons from similar or other expenses and liabilities as the
board of directors or the stockholders may determine in a specific instance or
by resolution of general application.
Section 9.2 PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
A. In making a determination with respect to entitlement to
indemnification, the person or persons or entity making such determination shall
presume that such person is entitled to indemnification under this Article and
the Corporation shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption.
- 3 -
<PAGE>
B. The termination of any proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly
provided in this Certificate of Incorporation or in the Corporation's bylaws) of
itself adversely affect the right of any person to indemnification or create a
presumption that such person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, that such person had
reasonable cause to believe that his conduct was unlawful.
Neither the amendment nor the repeal of this Article, nor the
adoption of any provision of the Certificate of Incorporation or bylaws or of
any statute inconsistent with this Article 9, shall eliminate or reduce the
effect of this Article, in respect of any acts or omissions occurring prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE 10
The Corporation shall have authority, to the fullest extent now or
hereafter permitted by the GCL, or by any other applicable law, to enter into
any contract or transaction with one or more of its directors or officers, or
with any corporation, partnership, joint venture, trust, association, or other
entity in which one or more of its directors or officers are directors or
officers, or have a financial interest, notwithstanding such relationships and
notwithstanding the fact that the director or officer is present at or
participates in the meeting of the board of directors or committee thereof which
authorizes the contract or transaction.
ARTICLE 11
The names and mailing address of the person who will serve as
directors of the Corporation until their successors are elected and qualified or
until their earlier resignation or removal are:
Name Mailing Address
---- ---------------
Peter Fahlman 1610 - 555 West Hastings Street
Vancouver, B.C. V6B 4N6
Lance Tracey 1610 - 555 West Hastings Street
Vancouver, B.C. V6B 4N6
- 4 -
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate of
Incorporation on the 22nd day of July, 1999.
/s/ JOY C. LLOYD
----------------------------------------
Joy C. Lloyd, Incorporator
370 Seventeenth Street, Suite 4700
Denver, Colorado 80201-0185
- 5 -
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
E-XACT TRANSACTIONS LTD.
Adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware
E-xact Transactions Ltd., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Company, by unanimous written consent of
the Board of Directors on August 31, 1999, has adopted the following resolution
proposing and declaring advisable an amendment to the Certificate of
Incorporation of the Company:
RESOLVED, that Article 4 of the Certificate of Incorporation of the
Corporation be amended by adding Section 4.3, which shall read as
follows:
"Section 4.3 STOCK SPLIT. Pursuant to a 21,000:1 stock split
effective September 2, 1999, each share of commons stock, $.001
par value per share, outstanding on September 2, 1999, is split
into and is 21,000 shares of common stock, $.001 par value per
share. No change in the par value of the common stock occurs as a
result of the stock split."
SECOND: The foregoing Amendment was duly adopted by the Company's stockholders
in accordance with the provisions of Sections 242 of the General Corporation Law
of the State of Delaware.
THIRD: This Certificate of Amendment of the Certificate of Incorporation of
the Company has been executed and acknowledged and shall be filed and recorded
in accordance with Section 103 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed by Peter
Fahlman, its President, this 31st day of August, 1999.
E-XACT TRANSACTIONS LTD., a
Delaware corporation
By: /s/ PETER FAHLMAN
------------------------------------
Name: Peter Fahlman
----------------------------------
Title: President
---------------------------------
-1-
E-XACT TRANSACTIONS LTD.
BYLAWS
Article I
OFFICES
The registered office of E-xact Transactions Ltd. (the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation shall have offices at
such other places as the board of directors may from time to time determine.
Article II
STOCKHOLDERS
Section 1. Annual Meetings.
The annual meeting of stockholders for the election of directors and
for the transaction of such other business as may properly come before the
meeting shall be held on the date and at the time fixed, from time to time, by
the board of directors. Each such annual meeting shall be held at such place,
within or without the State of Delaware, as shall be determined by the board of
directors. The day, place and hour of each annual meeting shall be specified in
the notice of such annual meeting. Any annual meeting of stockholders may be
adjourned from time to time and place to place until its business is completed.
Section 2. Special Meetings.
Except as otherwise required by law or by the certificate of
incorporation, special meetings of stockholders may be called by the chairman of
the board, the president, a vice president or the board of directors pursuant to
a resolution approved by a majority of the entire board of directors or a sole
remaining director, and shall be called by the president or secretary at the
written request of stockholders owning a majority in amount of the entire
capital stock of the Corporation issued and outstanding and entitled to vote.
The term "entire board of directors," as used in these bylaws, means the total
number of directors which the Corporation would have if there were no vacancies.
Section 3. Stockholder Action.
Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such stockholders and may be effected without a meeting, without prior notice
and without a vote, if a consent in
-1-
<PAGE>
writing, setting forth the action so taken, shall be signed by all of the
stockholders entitled to vote.
Section 4. Notice of Meeting.
Written notice stating the place, date and hour of the meeting and,
in case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, except as otherwise required by statute or the certificate
of incorporation, either personally or by mail, prepaid telegram, telex,
facsimile transmission, cablegram, overnight courier or radiogram, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, addressed to the stockholder at his address as it appears on the stock
records of the Corporation. If given personally or otherwise than by mail, such
notice shall be deemed to be given when either handed to the stockholder or
delivered to the stockholder's address as it appears on the stock records of the
Corporation.
Section 5. Waiver.
Attendance of a stockholder of the Corporation, either in person or
by proxy, at any meeting, whether annual or special, shall constitute a waiver
of notice of such meeting, except where a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice of any such meeting signed by a stockholder
or stockholders entitled to such notice, whether before, at or after the time
for notice or the time of the meeting, shall be equivalent to notice. Neither
the business to be transacted at, nor the purposes of, any meeting need be
specified in any written waiver of notice.
Section 6. Voting List.
The secretary shall prepare and make available, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall be produced and kept at the place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
-2-
<PAGE>
Section 7. Quorum.
Except as otherwise required by law, the certificate of
incorporation or these bylaws, the holders of not less than a majority of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum, and the act of the majority of such quorum
shall be deemed the act of the stockholders. If a quorum shall fail to attend
any meeting, the chairman of the meeting may adjourn the meeting from time to
time, without notice if the time and place are announced at the meeting, until a
quorum shall be present. At such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then, notwithstanding the prior paragraph
and except as otherwise required by law, those present at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
votes cast at such meeting.
Section 8. Record Date.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting, or at any adjournment of a
meeting of stockholders; or entitled to receive payment of any dividend or other
distribution or allotment of any rights; or entitled to exercise any rights in
respect of any change, conversion or exchange of stock; or for the purpose of
any other lawful action; the board of directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors. The record date for
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournments thereof shall not be more than sixty nor less
than ten days before the date of such meeting. The record date for any other
action shall not be more than sixty days prior to such action. If no record date
is fixed: (i) the record date for determining stockholders entitled to notice of
or to vote at any meeting shall be the close of business on the day next
preceding the day on which notice is given or, if notice is waived by all
stockholders, at the close of business on the day next preceding the day on
which the meeting is held; and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating to such other purpose. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 9. Voting and Proxies.
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<PAGE>
At every meeting of the stockholders, each stockholder shall be
entitled to one vote, in person or by proxy, for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date unless the proxy provides for a longer period.
When a quorum is present at any meeting, the vote of the holders of a majority
of the stock having voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by express provision of the statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern.
Section 10. Procedure.
The order of business and all other matters of procedure at every
meeting of the stockholders may be determined by the presiding officer.
Article III
DIRECTORS
Section 1. Number.
Except as otherwise fixed pursuant to the provisions of the
certificate of incorporation, the number of directors shall be fixed from time
to time exclusively by resolutions adopted by the board of directors; provided,
however, that the number of directors shall at no time be less than one and
further provided that no decrease in the number of directors constituting the
board of directors shall shorten the term of any incumbent director and
provided, further, that a newly created directorship established by the election
of an additional member of the board by the board of directors shall be deemed
to automatically increase the size of the board by one.
Section 2. Election and Terms.
A director shall hold office until the annual meeting for the year
in which his term expires and until his successor shall be elected and
qualified, subject, however, to such director's prior death, resignation,
retirement, disqualification or removal from office.
Section 3. Newly Created Directorships and Vacancies.
Except as otherwise fixed pursuant to the provisions of certificate
of incorporation, newly created directorships resulting from any increase in the
number of directors and any vacancies on the board of directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining directors then in office or
a sole remaining director, even though less than a quorum of the board of
directors, or by the stockholders. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
new
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directorship which was created or in which the vacancy occurred and until such
director's successor shall have been elected and qualified.
Section 4. Regular Meetings.
The first meeting of each newly elected board of directors elected
at the annual meeting of stockholders shall be held immediately after and at the
same place as, the annual meeting of the stockholders, provided a quorum is
present, and no notice of such meeting shall be necessary in order to legally
constitute the meeting. Regular meetings of the board of directors shall be held
at such times and places as the board of directors may from time to time
determine.
Section 5. Special Meetings.
Special meetings of the board of directors may be called at any
time, at any place and for any purpose by the chairman of the executive
committee, the chairman of the board, the chief executive officer, or by any
officer of the Corporation upon the request of a majority of the entire board of
directors.
Section 6. Notice of Meetings.
Notice of regular meetings of the board of directors need not be
given.
Notice of every special meeting of the board of directors shall be
given to each director at his usual place of business or at such other address
as shall have been furnished by him for such purpose. Such notice shall be
properly and timely given if it is: (a) deposited in the United States mail not
later than the third calendar day preceding the date of the meeting or (b)
personally delivered, telegraphed, sent by facsimile transmission or
communicated by telephone at least twenty-four hours before the time of the
meeting. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting.
Section 7. Waiver.
Attendance of a director at a meeting of the board of directors
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A written waiver of notice signed by a director or directors
entitled to such notice, whether before, at, or after the time for notice or the
time of the meeting, shall be equivalent to the giving of such notice.
Section 8. Quorum.
Except as may be otherwise provided by law, in the certificate of
incorporation, or in these bylaws, the presence of a majority of the entire
board of directors shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting
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of the board of directors, and the act of a majority of the directors present at
a meeting at which a quorum is present shall be deemed the act of the board of
directors. Less than a quorum may adjourn any meeting of the board of directors
from time to time without notice.
Section 9. Participation in Meetings by Telephone.
Members of the board of directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 10. Powers.
The business, property and affairs of the Corporation shall be
managed by or under the direction of its board of directors, which shall have
and may exercise all the powers of the Corporation to do all such lawful acts
and things as are not by law, by the certificate of incorporation or by these
bylaws, directed or required to be exercised or done by the stockholders.
Section 11. Compensation of Directors.
Directors shall receive such compensation for their services as
shall be determined by a majority of the entire board of directors, provided
that directors who are serving the Corporation as officers or employees and who
receive compensation for their services as such officers or employees shall not
receive any salary or other compensation for their services as directors.
Section 12. Action without a Meeting.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors or any committee thereof may be taken without a meeting if
written consent thereto is signed by all members of the board of directors or of
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the board or committee. Any such consent may be in
counterparts and shall be effective on the date of the last signature thereon
unless otherwise provided therein.
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Article IV
COMMITTEES
Section 1. Designation of Committees.
The board of directors may establish committees for the performance
of delegated or designated functions to the extent permitted by law, each
committee to consist of one or more directors of the Corporation. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of such absent or disqualified
member.
Section 2. Committee Powers and Authority.
The board of directors may provide, by resolution or by amendment to
these bylaws, that a committee may exercise all the power and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, however, that a committee may not
exercise the power or authority of the board of directors in reference to
amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these bylaws; and, unless the resolution expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
Section 3. Committee Procedures.
To the extent the board of directors or the committee does not
establish other procedures for the committee, each committee shall be governed
by the procedures established in Article III, Section 4 (except as they relate
to an annual meeting of the board of directors) and Article III, Sections 5, 6,
7, 9, 10, and 12 of these bylaws, as if the committee were the board of
directors.
Article V
OFFICERS
Section 1. Number.
The officers of the Corporation shall be appointed or elected by the
board of directors. The officers shall be a chief executive officer, a
president, such number of executive vice presidents as the board of directors
may from time to time determine, such
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number of vice presidents as the board of directors may from time to time
determine, a secretary, such assistant secretaries as the board of directors may
from time to time determine, and a treasurer. Any person may hold two or more
offices at the same time.
Section 2. Additional Officers.
The board of directors may appoint such other officers as it shall
deem appropriate.
Section 3. Term of Office, Resignation.
All officers, agents and employees of the Corporation shall hold
their respective offices or positions at the pleasure of the board of directors
and may be removed at any time by the board of directors with or without cause.
Any officer may resign at any time by giving written notice of his resignation
to the chief executive officer, the president or to the secretary, and
acceptance of such resignation shall not be necessary to make it effective
unless the notice so provides. Any vacancy occurring in any office shall be
filled by the board of directors.
Section 4. Duties.
The officers of the Corporation shall perform the duties and
exercise the powers as may be assigned to them from time to time by the board of
directors or the president and chief executive officer. In the absence of such
assignment, the officers shall have the duties and powers described in Sections
5 through 10 of this Article.
Section 5. Chief Executive Officer.
The chief executive officer shall be chief executive officer of the
Corporation and, subject to the direction and control of the board of directors,
shall manage the business of the Corporation. The chief executive officer shall
also be deemed to be the chairman of the board or President of the Corporation
at any time when those offices are otherwise vacant. The chief executive officer
may execute contracts, deeds and other instruments on behalf of the Corporation.
The chief executive officer shall have full authority on behalf of the
Corporation to attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other rights of
ownership with respect to any shares of capital stock or other securities held
by the Corporation and issued by any other corporation or with respect to any
partnership, trust or similar interest held by the Corporation.
Section 6. President
The president shall, subject to the direction and control of the
board of directors and the chief executive officer, shall manage the business of
the Corporation. The president may execute contracts, deeds and other
instruments on behalf of the Corporation. In the
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<PAGE>
absence of the chief executive officer or in the event of his disability,
inability or refusal to act, the president shall perform the duties and exercise
the power of the chairman of the board and chief executive officer. The
president shall have full authority on behalf of the Corporation to attend any
meeting, give any waiver, cast any vote, grant any discretionary or directed
proxy to any person, and exercise any other rights of ownership with respect to
any shares of capital stock or other securities held by the Corporation and
issued by any other corporation or with respect to any partnership, trust or
similar interest held by the Corporation.
Section 7. Executive Vice President.
Each executive vice president, if any, shall perform such functions
as may be prescribed by the board of directors, the chairman of the board and
chief executive officer or the president and chief operating officer. Each
executive vice president may execute contracts, deeds and other instruments on
behalf of the Corporation. Each executive vice president shall have full
authority on behalf of the Corporation to attend any meeting, give any waiver,
cast any vote, grant any discretionary or directed proxy to any person, and
exercise any other rights of ownership with respect to any shares of capital
stock or other securities held by the Corporation and issued by any other
corporation or with respect to any partnership, trust or similar interest held
by the Corporation. Each executive vice president shall perform such other
duties as the board, the chief executive officer or the president may from time
to time prescribe or delegate to him.
Section 8. Vice President.
Each vice president, if any, shall perform such functions as may be
prescribed by the board of directors, the chief executive officer, the
president, or any executive vice president. Each vice president may execute
contracts, deeds and other instruments on behalf of the Corporation. The vice
president shall have full authority on behalf of the Corporation to attend any
meeting, give any waiver, cast any vote, grant any discretionary or directed
proxy to any person, and exercise any other rights of ownership with respect to
any shares of capital stock or other securities held by the Corporation and
issued by any other corporation or with respect to any partnership, trust or
similar interest held by the Corporation. Each vice president shall perform such
other duties as the board, the chief executive officer, the president or any
executive vice president may from time to time prescribe or delegate to him.
Section 9. Secretary.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and, upon the request of a person entitled to call
a special meeting of the board of directors, he shall give notice of any such
special meeting. He shall keep the minutes of all meetings of the stockholders,
the board of directors or any committee established by the board of directors.
The secretary shall be responsible for the maintenance of all records of the
Corporation and may attest documents on behalf of the Corporation. The secretary
shall
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perform such other duties as the board, the chief executive officer, the
president or any vice president may from time to time prescribe or delegate to
him.
Section 10. Assistant Secretary.
Assistant secretaries of the corporation shall, in general, perform
the duties as are assigned to them by the secretary or by the president or by
the board of directors from time to time. Any assistant secretary or
secretaries, when authorized by the board of directors, may sign with the
president or a vice president certificates for the corporation's shares, the
issuance of which have been authorized by a resolution of the board of
directors.
Section 11. Treasurer.
The treasurer shall be responsible for the control of the funds of
the Corporation and the custody of all securities owned by the Corporation. The
treasurer shall perform such other duties as the board, the chief executive
officer, the president or any vice president may from time to time prescribe or
delegate to him.
Section 12. Compensation.
Officers shall receive such compensation, if any, for their services
as may be authorized or ratified by the board of directors. Election or
appointment as an officer shall not of itself create a right to compensation for
services performed as such officer.
Article VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Directors and Officers.
Subject to the certificate of incorporation and the other sections
of this Article, the Corporation shall indemnify, to the fullest extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware in effect on the date hereof and as amended from time to time, any
person who was or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, association or other enterprise, against expenses (including
attorneys' fees), judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding, including any action, suit or proceeding by or
in the right of the Corporation (a "Proceeding"). The Corporation shall advance
all reasonable expenses incurred by or on behalf of any such person in
connection with any Proceeding within ten days after the receipt by the
Corporation of a statement or statements from such
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<PAGE>
person requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such statement or statements
shall reasonably evidence the expenses incurred by such person and, if such
person is an officer or director of the Corporation, shall include or be
preceded or accompanied by an undertaking by or on behalf of such person to
repay any expenses advanced if it shall ultimately be determined that such
person is not entitled to be indemnified against such expenses. Costs, charges
or expenses of investigating or defending Proceedings for which indemnity shall
be sought hereunder may be incurred without the Corporation's consent provided
that no settlement of any such Proceeding may be made without the Corporation's
consent, which consent shall not be unreasonably withheld.
Section 2. Determination of Right to Indemnification.
a. Any indemnification requested by any person under Section 1 of
this Article shall be made no later than forty-five days after receipt of the
written request of such person unless a determination is made within said
forty-five day period: (i) by a majority vote of directors who are not parties
to such Proceedings, or (ii) in the event a quorum of non-involved directors is
not obtainable, at the election of the Corporation, by independent legal counsel
in a written opinion, that such person is not entitled to indemnification
hereunder.
b. Notwithstanding a determination under Section 2(a) above that any
person is not entitled to indemnification with respect to a Proceeding, such
person shall have the right to apply to any court of competent jurisdiction for
the purpose of enforcing such person's right to indemnification pursuant to
these bylaws. Neither the failure of the Corporation (including its board of
directors or independent legal counsel) to have made a determination prior to
the commencement of such action that such person is entitled to indemnification
hereunder, nor an actual determination by the Corporation (including its board
of directors or independent legal counsel) that such person is not entitled to
indemnification hereunder, shall be a defense to the action or create any
presumption that such person is not entitled to indemnification hereunder.
c. The Corporation shall indemnify any person against all expenses
incurred in connection with any hearing or Proceeding under this Section 2 if
such person prevails on the merits or otherwise in such Proceeding.
Section 3. Subrogation.
In the event of payment under these bylaws, the indemnifying party
or parties shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnified person therefor and such indemnified
person shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the indemnifying party or parties to effectively bring suit
to enforce such rights.
Section 4. Presumptions and Effect of Certain Proceedings.
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a. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that such person is entitled to indemnification
under this Article, and the Corporation shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons
or entity of any determination contrary to that presumption.
b. The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in these Bylaws) of itself adversely affect the right of any person to
indemnification or create a presumption that such person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that such person had reasonable cause to believe that his conduct
was unlawful.
Section 5. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of these bylaws, no person shall
be entitled to indemnification or advancement of expenses under these bylaws
with respect to any Proceeding brought by such person, unless the bringing of
such Proceeding or making of such claim shall have been approved by the board of
directors.
Section 6. Contract.
The foregoing provisions of this Article shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any director or officer may be entitled
apart from the provisions of this Article.
Section 7. Surviving Corporation.
The board of directors may provide by resolution that references to
"the Corporation" in this Article shall include, in addition to this
Corporation, all constituent corporations absorbed in a merger with this
Corporation so that any person who was a director or officer of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, employee or agent of another corporation,
partnership, joint venture, trust, association or other entity shall stand in
the same position under the provisions of this Article with respect to this
Corporation as he would if he had served this Corporation in the same capacity
or is or was so serving such other entity at the request of this Corporation, as
the case may be.
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Section 8. Inurement.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 9. Employees and Agents.
To the same extent as it may do for a director or officer, the
Corporation may indemnify and advance expenses to a person who is not and was
not a director or officer of the Corporation but who is or was an employee or
agent of the Corporation.
Article VII
CAPITAL STOCK
Section 1. Certificates.
Each stockholder of the Corporation shall be entitled to a
certificate or certificates signed by or in the name of the Corporation by the
chief executive officer, the president or a vice president, and by the treasurer
or an assistant treasurer and the secretary or an assistant secretary,
certifying the number of shares of stock of the Corporation owned by such
stockholder. Any or all the signatures on the certificate may be a facsimile.
Section 2. Facsimile Signatures.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he, she
or it was such officer, transfer agent or registrar at the date of issue.
Section 3. Registered Stockholders.
The Corporation shall be entitled to treat the holder of record of
any share or shares of stock of the Corporation as the holder in fact thereof
and, accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it has actual or other notice thereof, except as provided by law.
Section 4. Cancellation of Certificates.
All certificates surrendered to the Corporation shall be canceled
and, except in the case of lost, stolen or destroyed certificates, no new
certificates shall be issued until the
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former certificate or certificates for the same number of shares of the same
class of stock have been surrendered and canceled.
Section 5. Lost, Stolen or Destroyed Certificates.
The board of directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed upon the making
of an affidavit of that fact by the person claiming the certificate or
certificates to be lost, stolen or destroyed. In its discretion, and as a
condition precedent to the issuance of any such new certificate or certificates,
the board of directors may require that the owner of such lost, stolen or
destroyed certificate or certificates, or such person's legal representative,
give the Corporation and its transfer agent or agents, registrar or registrars a
bond in such form and amount as the board of directors may direct as indemnity
against any claim that may be made against the Corporation and its transfer
agent or agents, registrar or registrars on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate.
Section 6. Transfer of Shares.
Shares of stock shall be transferable on the books of the
Corporation by the holder thereof, in person or by duly authorized attorney,
upon the surrender of the certificate or certificates representing the shares to
be transferred, properly endorsed, with such proof or guarantee of the
authenticity of the signature as the Corporation or its agents may reasonably
require.
Section 7. Transfer Agents and Registrars.
The Corporation may have one or more transfer agents and one or more
registrars of its stock, whose respective duties the board of directors may,
from time to time, define. No certificate of stock shall be valid until
countersigned by a transfer agent, if the Corporation shall have a transfer
agent, or until registered by the registrar, if the Corporation shall have a
registrar. The duties of transfer agent and registrar may be combined.
Article VIII
SEAL
The board of directors may adopt and provide a seal which shall be
circular in form and shall bear the name of the Corporation and the words "Seal"
and "Delaware," and which, when adopted shall constitute the corporate seal of
the Corporation.
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Article IX
FISCAL YEAR
The fiscal year for the Corporation shall close on the 31st of
December of each year.
Article X
AMENDMENTS
Subject to the provisions of the certificate of incorporation, these
bylaws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duly called for that purpose) by
a majority vote of the shares represented and entitled to vote at such meeting,
provided that in the notice of such special meeting, notice of such purpose
shall be given. Subject to the laws of the State of Delaware, the certificate of
incorporation and these bylaws, the board of directors may, by majority vote of
those present at any meeting at which a quorum is present, amend these bylaws or
enact such other bylaws as in their judgment may be advisable for the regulation
of the conduct of the affairs of the Corporation.
/s/ Not Legible
-----------------------------------------
Secretary
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[LETTERHEAD]
EXHIBIT 5.1
October 20, 1999
E-xact Transactions Ltd.
1610-555 West Hastings Street
Vancouver, British Columbia
Canada V6H 4N6
Re: Registration Statement on Form SB-2
Relating to 4,825,000 shares of Common Stock, $.001 par value
Dear Ladies and Gentlemen:
We have acted as counsel for E-xact Transactions Ltd., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form SB-2 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission"). The
Registration Statement relates to the registration under the Securities Act of
1933, as amended (the "1933 Act"), of 4,804,500 shares of common stock, $.001
par value of the Company (the "Securities") of which 1,972,500 shares will be
offered for sale by the company and 2,832,000 shares may be sold by the holders
thereof (the "Selling Stockholders").
This opinion is delivered pursuant to the requirements of Item 601(b)(5)
of Regulation S-B under the 1933 Act.
We have examined and relied on originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments, have made such inquiries as the questions of fact of officers and
representatives of the Company and have made such examinations of law as we have
deemed necessary or appropriate for purposes of giving the opinion expressed
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with the originals of all documents submitted to us as copies.
The following opinions are limited solely to applicable federal law of the
United States of America and the General Corporation law of the State of
Delaware. While we are not licensed to practice in the State of Delaware, we
have reviewed applicable provisions of the General Corporation Law of the State
of Delaware as we have deemed appropriate in connection with the opinions
expressed herein. Except as described, we have neither examined nor do we
express any opinion with respect to Delaware law.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that the
securities offered for sale by the Selling Stockholders, as provided in the
Registration Statement, were duly and validly authorized by all necessary
corporate action of the Company, and the shares presently issued are validly
issued, fully paid and non-assessable, and the shares to be issued upon the
exercise of warrants upon payment of the warrant exercise price and issuance
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Prospectus included in the
Registration Statement as the counsel who will pass upon the validity of the
Securities. In giving this consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules of the Securities and Exchange Commission.
Very truly yours,
/s/ DAVIS, GRAHAM & STUBBS, LLP
DAVIS, GRAHAM & STUBBS, LLP
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SPONSORSHIP AGREEMENT
- ------------------------------------------------------------------------------
THIS AGREEMENT dated August 9, 1999, is made
BETWEEN
CANACCORD CAPITAL CORPORATION, a member of the Vancouver Stock
Exchange (the "Exchange"), of Suite 2200, 609 Granville Street,
Vancouver, British
Columbia, V7Y 1H2
(the "Member");
AND
E-XACT TRANSACTIONS LTD., a company continued under the law of
Delaware, of Suite 1610 - 555 West Hastings Street, Vancouver,
British Columbia, V6B 4N6
(the "Issuer").
WHEREAS:
A. The Issuer has not previously carried out a distribution of its securities
to the public, and intends to file an application to conditionally list its
common shares (the "Shares") on the Vancouver Stock Exchange (the "Exchange")
(the "Transaction");
B. Pursuant to Exchange Policy No. 4 ("Policy No. 4"), the Exchange requires
that the Issuer obtain a member to act as its sponsor within the meaning of
Policy No. 4 as a condition of approval of the Transaction;
<PAGE>
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THE PARTIES to this Agreement therefore agree:
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
(a) "Act" means the Securities Act, (British Columbia), R.S.B.C. 1996,
as amended, the regulations and rules made thereunder and all
administrative policy statements, blanket orders, notices,
directions and rulings issued by the Commission;
(b) "Approval Date" means the date the Shares commence trading on the
Exchange;
(c) "Business" means the corporate undertaking of the Issuer;
(d) "Commission" means the British Columbia Securities Commission;
(e) "Control Block" means a holding of Shares or other securities of the
Issuer or both held by a person or combination of persons acting
jointly or in concert to which are attached more than 20% of the
voting rights attached to all outstanding Voting Securities;
(f) "Exchange Policy" means a policy, as amended, contained in the
Exchange's Corporate Finance Services Policy and Procedures
Manual;
(g) "Issuer" has the meaning defined above and includes any wholly-owned
or partially-owned subsidiaries of the Issuer;
(h) "Material Change" has the meaning defined in the Act;
(i) "Member" has the meaning defined above;
(j) "Proceeds" means the proceeds from the Public Offering, if any;
<PAGE>
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(k) "Public Offering" means the offering of the Issuer's securities
contemplated to be made by the Member as agent contemporaneously
with or after the closing of the Transaction, if any;
(l) "Quarterly Report" means a report of the Issuer prepared on Form 61
to the Act;
(m) "Reports" means any business plans, engineering reports, geological
reports, technical reports, valuation opinions or similar documents
concerning the Business;
(n) "Transaction" has the meaning defined in Recital A; and
(o) "Voting Security" means a security of the Issuer that carries a
voting right under all circumstances.
2. INVESTIGATION BY MEMBER
2.1 The Issuer shall at all times afford full access to the Member and
its authorized representatives to all properties, books, contracts, commitments
and other corporate records, and shall furnish the Member with copies thereof
and such other information concerning the Business as the Member may request, in
order that the Member may undertake an investigation of the Issuer and the
Business.
2.2 The Issuer shall forthwith provide the Member with:
(a) the most recent audited financial statements concerning the Issuer,
and unaudited financial statements, prepared as of a date
satisfactory to the Member;
(b) a draft Pre-Listing Application and Fact Sheet or a draft disclosure
document appropriate to the Transaction, in the form required by the
Exchange, together with all required schedules or attachments;
(c) a draft disclosure document (prospectus or filing statement)
appropriate to the Transaction;
<PAGE>
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(d) fully completed and executed personal information forms in Form 4B
to the Act for all directors and officers;
(e) copies of all Reports which are available, in final form or in draft
if such Reports have not been finalized;
(f) questionnaires, in the form provided by the Member, completed in
full by each of its directors and each member of its senior
management; and
(g) copies of all material contracts to which it is a party.
2.3 Upon conclusion of its investigation, the Member shall give notice
to the Issuer whether it has decided to act as the Issuer's sponsor with regard
to the Transaction.
3. TERM
This Agreement shall be effective from the date hereof until:
(a) if the Member gives notice to the Issuer that it has decided not to
act as the Issuer's sponsor with regard to the Transaction, the date
such notice is given; or
(b) if the Member gives notice to the Issuer that it has decided to act
as the Issuer's sponsor with regard to the Transaction, the close of
business on the Approval Date;
unless it is terminated earlier by the Member in accordance herewith.
4. SPONSORSHIP DUTIES
If the Member gives notice to the Issuer that it will act as sponsor with regard
to the Transaction the Member will undertake the sponsorship duties prescribed
by Policy No. 4 relating to the sponsorship.
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5. FEE
5.1 The Issuer will pay the Member a fee of U.S.$10,000.00 (plus G.S.T.)
in consideration of the Member acting as the Issuer's sponsor with regard to the
Transaction, payable:
(a) as to U.S.$5,000.00 + GST upon execution of this Agreement; and
(b) as to U.S.$5,000.00 + GST upon the receipt of notice from the
Exchange of that the Transaction has cleared the Pre-Assessment
Stage.
The Member's G.S.T. Number is 133567545.
5.2 The Issuer's obligation to pay the above fee earned by the Member
up to the date of termination of this Agreement shall survive the termination of
this Agreement.
6. COVENANTS OF THE ISSUER
6.1 If, during the term of this Agreement, a Material Change in the
assets, liabilities (contingent or otherwise), business, operations or capital
of the Issuer should occur, or be anticipated or threatened, the Issuer shall
notify the Member immediately, in writing, with full particulars of the change.
6.2 If the Issuer is not certain as to whether a Material Change has
occurred, the Issuer shall promptly notify the Member in writing of the full
particulars of the event giving rise to the uncertainty, and shall consult with
the Member as to whether such event constitutes a Material Change.
6.3 The Issuer shall provide the Member with copies of all Reports
forthwith upon preparation or receipt of same.
6.4 The Issuer shall notify the Member of:
(a) any change proposed to be made in the Business;
(b) any proposed issuance of a Control Block;
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(c) any proposed sale or other disposition of any outstanding shares in
the capital of any Subsidiaries wholly or partially owned by the
Issuer;
forthwith upon the proposal of such change, issuance, sale or disposition.
6.5 The Issuer shall notify the Member of any proposed change to the
constitution of the Board of Directors of the Issuer, or to the membership of
senior management of the Issuer, forthwith upon the proposal of such a change.
Forthwith after giving such notification, the Issuer shall provide the Member
with a questionnaire in the form provided by the Member, completed in full by
the proposed candidate. The Issuer shall promptly notify the Member, in writing,
of any resignations, terminations or departures of members of the Board of
Directors or senior management.
6.6 The Member reserves its right to terminate this Agreement, resign as
sponsor and to notify the Exchange of its decision to resign should it object to
any of the proposed changes set forth in Subsections 6.4 and 6.5.
6.7 The Issuer shall provide the Member with copies of all Quarterly
Reports, press releases, promotional materials, material change reports,
materials prepared in connection with the Issuer's annual general meeting and
any special meetings of shareholders, annual reports, and financial statements
prepared by or for the Issuer forthwith upon preparation or receipt of the same.
6.8 The Issuer shall notify the Member of any circumstances where the
Issuer does not expect to comply with a filing deadline imposed by regulatory
authorities. Such notification shall be provided at least 10 business days
before the deadline.
6.9 The Issuer shall at all times use its best efforts to assist the
Member in carrying out its duties as sponsor.
6.10 The Issuer acknowledges that it has appointed Peter Fahlman as its
officer responsible for carrying out its reporting obligations to the Member
hereunder, and agrees that
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the Member may direct and address all inquiries and submit all notices hereunder
to the attention of Peter Fahlman.
6.11 Nothing in this Agreement is or shall be construed as a fetter on
the discretion of the directors of the Issuer.
6.12 All information relating to the Issuer provided by the Issuer to
the Member shall be directed to the corporate finance department of the Member,
and the Issuer will not disclose to any other person associated with the Member
any information relating to the Issuer which is not publicly available.
7. ACKNOWLEDGEMENTS OF ISSUER
7.1 The Issuer acknowledges that the Member has informed the Issuer and
its directors and management of their responsibilities concerning continuous and
timely disclosure under the Act, and in particular, without limitation, of the
Issuer's responsibility to issue a press release, and file a material change
report, in the event of a Material Change in the business, operations, assets or
ownership of the Issuer. The Issuer further acknowledges in this regard that it
has been made aware by the Member of the services offered by commercial news
disseminators.
7.2 The Issuer acknowledges that the Member has advised the Issuer
concerning the Exchange's on-going requirements concerning the minimum
distribution of the Shares.
8. REPRESENTATIONS, WARRANTIES AND
INDEMNIFICATIONS OF THE ISSUER
8.1 The Issuer warrants and represents to the Member, and acknowledges
that the Member has relied on such warranties and representations in entering
into this Agreement, that:
(a) the responses in all questionnaires completed by the directors and
senior management personnel of the Issuer and provided to the Member
pursuant to this Agreement shall be accurate and complete;
<PAGE>
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(b) the descriptions of the assets and the liabilities of the Issuer
set out in the balance sheets of the Issuer, including the notes
thereto, to be provided to the Member will be true and correct,
will accurately and fairly present the financial position and
condition of the Issuer as at the respective dates thereof, will
reflect all liabilities (absolute, accrued, contingent or
otherwise) of the Issuer at the respective dates thereof and will
be prepared in accordance with generally accepted accounting
principles, applied on a consistent basis;
(c) the statement of earnings, retained earnings and changes in
financial position of the Issuer, including the notes thereto, to be
provided to the Member will in each case accurately and fairly
present the results of the operations of the Issuer for the
respective periods covered thereby and will be prepared in
accordance with generally accepted accounting principles applied on
a consistent basis throughout such period;
(d) the financial position of the Issuer as at the date hereof is no
less favourable than that disclosed in the latest balance sheets
provided to the Member;
(e) the information concerning the Business which will be provided to
the authors of the Reports will be accurate, complete and fair, and
the Reports, to the best of the knowledge of the Issuer, will be
fair and accurate in all particulars;
(f) to the extent that they are required to do so, the authors of the
Reports will possess all of the qualifications required by the
Exchange and the Commission of authors of such reports;
(g) the information contained in the sources and uses of funds
statements to be provided to the Member hereunder will be accurate
and complete;
(h) the execution of this Agreement by the Issuer does not and will not
conflict with, and does not and will not result in a breach of, or
constitute a default under, any agreement or instrument to which the
Issuer is a party, or by which the Issuer is bound, or the terms of
the incorporating documents of the Issuer;
<PAGE>
- 9 -
(i) the execution of this Agreement has been authorized by all necessary
corporate action on the part of the Issuer;
(j) as of the date hereof:
(i) there has not been any Material Change in the assets,
liabilities or obligations (absolute, accrued, contingent or
otherwise) of the Issuer;
(ii) there has not been any Material Change in the capital or
long-term debt of the Issuer;
(iii) there has not been any Material Change in the Business,
business prospects, condition (financial or otherwise) or
results of the operation of the Issuer;
from those disclosed in the most recent [consolidated] financial
statements provided to the Member of which the Member has not been
made aware by the Issuer;
(k) since the date of the most recent financial statements provided to
the Member, the Issuer has carried on the Business in the ordinary
course;
(l) the Issuer is duly registered and licensed to carry on business in
the jurisdictions which it carries on business or owns property;
(m) no order suspending the sale of or ceasing the trading in the
Shares or other securities of the Issuer has been issued and not
rescinded, revoked or withdrawn by any securities commission,
regulatory authority or stock exchange in any jurisdiction, and
no proceedings for that purpose have been instituted or are
pending or are, to the knowledge of the directors or senior
management of the Issuer, contemplated or threatened by any
securities commission, regulatory authority or stock exchange;
<PAGE>
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(n) no enquiry or investigation, formal or informal, in relation to the
Issuer or the Issuer's directors or senior management, has been
commenced or threatened by any official or officer of any securities
commission, regulatory authority or stock exchange;
8.2 The representations and warranties of the Issuer set forth in
Subsection 8.1 hereof shall continue to be true and accurate throughout the term
of this Agreement.
8.3 The Issuer shall indemnify and save harmless the Member, and each
director, officer, employee or agent of the Member (collectively, the
"Indemnified Parties"), from and against all losses, claims, damages,
liabilities, costs or expenses caused or incurred by the Indemnified Parties
arising or resulting from any breach by the Issuer of any of the terms of this
Agreement.
8.4 If any action or claim is brought against an Indemnified Party in
respect of which indemnity may be sought from the Issuer pursuant to this
Agreement, the Indemnified Party will promptly notify the Issuer in writing.
8.5 The Issuer will assume the defence of the action or claim,
including the employment of counsel and the payment of all expenses.
8.6 The Indemnified Party will have the right to employ separate
counsel, and the Issuer will pay the fees and expenses of such counsel.
8.7 The indemnity provided for in this Section will not be limited or
otherwise affected by any other indemnity obtained by the Indemnified Party from
any other person in respect of any matters specified in this Agreement and will
continue in full force and effect until all possible liability of the
Indemnified Party arising out of this Agreement has been extinguished by the
operation of law.
8.8 If indemnification under this Agreement is found in a final
judgment (not subject to further appeal) by a court of competent jurisdiction
not to be available for reason of public policy, the Issuer and the Indemnified
Parties will contribute to the losses, claims, damages,
<PAGE>
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liabilities or expenses (or actions in respect thereof) for which such
indemnification is held unavailable in such proportion as is appropriate to
reflect the relative benefits to and fault of the Issuer, on the one hand, and
the Indemnified Parties on the other hand, in connection with the matter giving
rise to such losses, claims, damages, liabilities or expenses (or actions in
respect thereof). No person found liable for a fraudulent misrepresentation
(within the meaning of applicable securities laws) will be entitled to
contribution from any person who is not found liable for such fraudulent
misrepresentation.
8.9 To the extent that any Indemnified Party is not a party to this
Agreement, the Member will obtain and hold the right and benefit of this section
in trust for and on behalf of such Indemnified Party.
9. TERMINATION
9.1 The Member may terminate this Agreement in any of the following
events:
(a) if an adverse Material Change (actual, anticipated or threatened) in
the assets, liabilities (contingent or otherwise), business
operations or capital of the Issuer should occur;
(b) if any order is made suspending trading in the Shares on the
Exchange, or any order to cease or suspend trading in the Shares is
made pursuant to any of the Canadian Securities Acts or is made by
any other regulatory authority, and is not rescinded, revoked or
withdrawn within 30 days of the making thereof;
(c) if any enquiry or investigation (whether formal or informal) in
relation to the Issuer or the Issuer's directors or senior
management, is commenced or threatened by an officer or official of
any securities regulatory authority in Canada or by any officer or
official of any other competent authority;
(d) if the Issuer shall at any time be in breach of any of the terms of
this Agreement;
(e) if the Issuer determines to take a course of action referred to in
Subsections 6.4 or 6.5 to which the Member has notified the Issuer
in writing it objects; and
<PAGE>
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(f) if the Member determines that any representation or warranty made by
the Issuer in this Agreement is false or has become false.
9.2 Any termination by the Member hereunder shall be made by notice in
writing to the Issuer. Notwithstanding the giving of any notice of termination
hereunder, the expenses and fees agreed to be paid by the Issuer incurred up to
the time of the giving of such notice shall be paid by the Issuer as herein
provided.
9.3 The Issuer acknowledges and agrees that, if the Member terminates
this Agreement, the Member shall comply with all applicable provisions of Policy
No. 4 relating to termination of sponsorship, including the filing of a letter
explaining the termination with the Exchange. In such event, the Member may
disclose to the Exchange such information concerning the Issuer as the Member in
its sole discretion considers to be necessary to fulfill its obligations to the
Exchange and the requirements of Policy No. 4, including any information which
the Issuer has disclosed to the Member on a privileged or confidential basis.
9.4 The rights of the Member to terminate this Agreement are in
addition to such other remedies as it may have in respect of any default,
misrepresentation, act or failure of the Issuer in respect of any of the matters
contemplated by this Agreement.
9.5 The Issuer may terminate this Agreement upon giving 10 days written
notice to the Member.
10 EXPENSES OF MEMBER
10.1 The Issuer will pay all of the expenses reasonably incurred by the
Member in connection herewith, including, without limitation, the fees, not to
exceed $35,000.00, and expenses of any solicitors which might be retained by the
Member in connection herewith.
10.2 The Member may, from time to time, render accounts for such
expenses to the Issuer for payment on the dates set out in such accounts.
10.3 The Issuer's covenant to pay the Member's expenses shall survive
termination of this Agreement.
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11. NOTICE
11.1 Any notice under this Agreement will be given in writing and must be
delivered, sent by facsimile transmission or mailed by prepaid post and
addressed to the party to which notice is to be given at the address indicated
above, or at another address designated by such party in writing.
11.2 If notice is sent by facsimile transmission or is delivered, it will
be deemed to have been given at the time of transmission or delivery.
11.3 If notice is mailed, it will be deemed to have been received 48
hours following the date of mailing of the notice.
11.4 If there is an interruption in normal mail service due to strike,
labour unrest or other cause at or prior to or within 48 hours of the time a
notice is mailed the notice will be sent by facsimile transmission or will be
delivered.
12. TIME
Time is of the essence of this Agreement and will be calculated in accordance
with the provisions of the Interpretation Act (British Columbia).
13. LANGUAGE
Wherever a singular or masculine expression is used in this Agreement, that
expression is deemed to include the plural, feminine or the body corporate where
required by the context.
14. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
<PAGE>
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15. COUNTERPARTS
This Agreement may be executed in two or more counterparts and may be delivered
by telecopier. Each executed counterpart will be deemed to be an original, and
all of them will constitute one agreement, effective as of the reference date
given above.
16. HEADINGS
The headings in this Agreement are for convenience of reference only and do not
affect the interpretation of this Agreement.
17. ENUREMENT
This Agreement enures to the benefit of and is binding on the parties to this
Agreement and their successors.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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18. LAW
This Agreement is governed by the law of British Columbia, and the parties
hereto irrevocably attorn and submit to the jurisdiction of the courts of
British Columbia with respect to any dispute related to this Agreement.
The common seal of )
CANACCORD CAPITAL CORPORATION )
was hereunto affixed in the )
presence of: )
)
)
[illegible signature] )
- --------------------------------- ) c/s
Authorized Signatory )
[illegible signature] )
- --------------------------------- )
Authorized Signatory )
The common seal of )
E-XACT TRANSACTIONS LTD. )
was hereunto affixed in the )
presence of: )
)
)
[illegible signature] )
- --------------------------------- )
Authorized Signatory ) c/s
)
)
- --------------------------------- )
Authorized Signatory )
LEASE
THIS INDENTURE made the 22 nd day of April, 1999,
BETWEEN:
HARBOUR CENTRE COMPLEX LIMITED, as attorney-
in-fact for Lord Realty Holdings Limited and
Privest Properties Ltd., P.O. Box 12050,
555 West Hastings Street, Vancouver, British
Columbia;
(the "Landlord")
OF THE FIRST PART
AND:
E-XACT TRANSACTIONS LTD.
P.O. BOX 12088
555 WEST HASTINGS ST.
VANCOUVER, B.C.
V6B 4N5
(the "Tenant")
OF THE SECOND PART
DEFINITIONS
1.01 The Parties hereto agree that when used in this Lease or in any Schedule
attached to this Lease, the following words or expressions have the meanings
hereinafter set forth:
(a) "herein", "hereof", "hereby", "hereunder", "hereto", "hereinafter" and
similar expressions refer to this Lease and not to any particular
section, paragraph or other portion hereof, unless there is something in
the subject matter or context inconsistent therewith.
(b) "Building" means that part of Harbour Centre presently known as the
Harbour Centre Office Tower and consisting of 21 office floors and 2
mechanical floors located between the 5th (elevation 217.16 feet) and
the ceiling of the 28th floor (elevation 493.16 feet) together with the
office tower entrances and lobby at Hastings Street level (elevation
(154.25 feet) and the elevators and elevator shafts from the Hastings
Street level to the ceiling of the 28th floor.
(c) "Business Day" means any of the days from Monday to Friday inclusive of
each week unless such day is a holiday.
(d) "Capital Tax" means the tax or excise imposed upon the Landlord which
is measured by or based in whole or in part upon the capital employed
by the Landlord at and after the date of the substantial completion
of construction of the Building, imputed as if the amount of such tax
or excise were that amount due if the Building were the only real
property of the Landlord and includes the amount of any capital or
place of business tax levied by the Provincial Government or other
applicable taxing authority against the Landlord with respect to the
Building, which at the present is calculated as one fifth (1/5) of
one percent (1%) of the Landlord's "taxable paid-up capital" as
defined in the applicable legislation.
(e) "Commencement Date" means the date set out in Section 1 of Schedule 2.
1
<PAGE>
(f) "Common Areas and Facilities" means (a) those areas, facilities,
utilities, improvements, equipment and installations in the Building
which, from time to time, are not designated or intended by the
Landlord to be leased to tenants of the Building, and (b) those
areas, facilities, utilities, improvements, equipment and
installations which serve or are for the benefit of the Building,
whether or not located within, adjacent to, or near the Building and
which are designated or intended by the Landlord from time to time as
part of the Common Areas and Facilities of the Building. Common
Areas and Facilities includes, without limitation, all areas,
facilities, utilities, improvements, equipment and installations
which are provided or designated (and which may be changed from time
to time) by the Landlord for the use or benefit of the tenants, their
employees, customers and other invitees in common with others
entitled to the use or benefit thereof in the manner and for the
purposes permitted by this Lease.
(g) "Harbour Centre" means the Lands and includes the Building and any other
buildings or improvements thereon and therein.
(h) "Landlord's Architect" means such firm of professional architects or
engineers as the Landlord may from time to time engage and includes any
consultant or consultants from time to time appointed by the Landlord or
the Landlord's Architect.
(i) "Lands" means those lands located in the City of Vancouver and described
as Block 13, District Lot 541, Plan 15728.
(j) "Leased Premises" means that part of the Building as outlined in red on
the plan attached hereto as Schedule 1, but excluding the exterior face
of the Building.
(k) "Net Rentable Area of the Building" means 249,755 square feet provided
that if from time to time there is a significant change in the rentable
space in the Building as a result of an addition thereto, partial
destruction thereof, or other cause, "Net Rentable Area of the Building"
shall thereafter mean the number of square feet of net rentable area of
the Building determined in accordance with Section 1.05 hereof.
(l) "Normal Business Hours" means the hours from 7:30 a.m. to 6:00 p.m.
on Business Days and the hours from 7:30 a.m. to 1:00 p.m. on
Saturdays except when Saturday is a holiday.
(m) "Operating Costs" means the total amounts paid or payable whether by
the Landlord or others on behalf of the Landlord for climate control
and maintaining, operating and repairing the Building, including
without limiting the generality of the foregoing, Capital Tax, the
aggregate of the amount paid for all fuel used in heating and the
purchase of steam for heating or other purposes, the amount paid or
payable for all electricity furnished by the Landlord to the
Building, the amount paid or payable on account of relamping and
reballasting pursuant to Section 14.01 hereof; the amount paid or
payable for all hot and cold water other than that chargeable to
tenants by reason of their extraordinary consumption of water; the
amount paid or payable for all labour and/or wages including
benefits, and other payments made to or for the benefit of janitors,
caretakers, and other employees of the Landlord (including wages and
benefits of the building manager) involved in the maintenance of the
Building, managerial and administrative expenses related to the
Building; the total charges of any independent contractors employed
in the repair, care, maintenance, and cleaning of the Building, the
amount paid or payable for all supplies (including all supplies and
necessities which are occasioned by everyday wear and tear); the
costs of window cleaning, maintenance of the Directing Board of the
Building, telephone and utility costs; the cost of accounting
services necessary to compute the rents and charges payable by the
tenants of the Building; the cost of operating, repairing and
maintaining the Building elevators; the cost of porters, guards and
other protection services; payments for general maintenance and
repairs to the plant and equipment supplying climate control; and the
amount paid for premiums for all insurance including that provided
for in Section 45.01 hereof. There shall be included in Operating
Costs that portion, which the Landlord acting reasonably considers to
be applicable to the Building, of any and all costs and expenses of
the same nature as the foregoing costs and expenses but which are
incurred either:
(i) with respect to the Building in common with other parts of
Harbour Centre; or
2
<PAGE>
(ii) with respect to parts of Harbour Centre used by tenants of the
Building and their employees and those doing business with them
in common with the tenants of other elements of Harbour Centre
and their employees and those doing business with them.
Operating Costs shall not include depreciation except:
(iii) depreciation of costs incurred for repairing and replacing
fixtures, equipment and facilities serving or comprising the
Building (including the heating, ventilating, air-conditioning
and climate control systems serving the Building) which by their
nature require periodic repair or replacement and which are not
charged fully in the year in which they are incurred, at rates
determined from time to time by the Landlord in accordance with
sound accounting principles;
(iv) cost of improvements properly charged to the Landlord's capital
account which substantially reduce Operating Costs and herein
defined amortized over their useful life as determined by the
Landlord in accordance with sound accounting principles; and
(v) interest calculated at two (2) percentage points per annum above
the annualized average daily prime bank commercial lending rate
charged during the period for which Operating Costs are being
calculated by any Canadian chartered bank designated from time to
time by the Landlord upon the undepreciated or unamortized
portion of the cost referred to in the preceding subsections
(m)(iii) and (iv).
Except as provided in subsection (m)(v) above, Operating Costs shall not
include interest on debts, capital retirement of debt, or other costs
properly chargeable to capital account, or costs directly chargeable by
the Landlord to any tenant or tenants of the Building pursuant to
sections of this Lease other than Section 11.01 hereof and the
corresponding provisions of their respective leases, or costs for which
the Landlord is reimbursed by the proceeds of insurance claims to the
extent of such reimbursement. If at any time during any fiscal period
the Building shall be less than ninety-five percent (95%) occupied by
tenants, the Landlord shall have the right to adjust any cost incurred
in the Building that is related to tenant occupancy so that the Landlord
will fully recover its expenditure and Operating Cost for such fiscal
period shall be deemed to be the amount of Operating Cost which would
have been incurred if the Building had been ninety-five percent (95%)
occupied by tenants during the whole of the fiscal period.
(n) "Proportionate Share" means the fraction which has as its numerator the
Tenant's Floor Area and which has as its denominator the Net Rentable
Area of the Building.
(o) "Rent" includes amounts referred to as rent, rental, additional rent or
additional rental.
(p) "Taxes" means all real property taxes, rates, duties and assessments
(including local improvement taxes), impost charges or levies,
whether general or special, that are levied, rated, charged or
assessed against Harbour Centre or any part or parts thereof from
time to time by any lawful taxing authority (whether federal,
provincial, municipal, school or otherwise), and any taxes or other
amounts which are imposed in lieu of, or in addition to, any such
real property taxes (whether of the foregoing character or not and
whether in existence at the Commencement Date or not), and any such
real property taxes and any amounts in lieu thereof levied or
assessed against the Landlord or the owner of Harbour Centre with
respect thereto or its interest therein but excludes such taxes as
Capital Tax, capital gains taxes, corporate, income, profits or
excess profits taxes.
(q) "Tenant's Floor Area" means, subject to Section 4.02, the number of
square feet set out in Section 2 of Schedule 2, calculated in accordance
with Section 1.05.
(r) "Term" means the period set out in Section 3 of Schedule 2.
(s) "Fair Market Rent" means that rent that would be paid for leases of
similar duration for office space similar to the Leased Premises in
office buildings of similar age, class, size, amenities and leasehold
improvements as between persons dealing in good faith and at arm's
length but excluding consideration of any signing bonus, leasehold
improvement allowance, rent free period or other inducement payment.
3
<PAGE>
When applicable, the Landlord and Tenant shall make bona fide efforts to
agree as to the Fair Market Rent payable. If, however, the parties have
not agreed as to the amount of rent by the sixtieth (60th) day prior to
the commencement of the term in question, then such rent shall be
determined either:
(i) by an arbitrator mutually agreed upon by the parties who shall be a
person currently active in the Province of British Columbia as an
Accredited Real Estate appraiser having not less than five years
experience as an appraiser; or
(ii) if the parties are unable to agree as to an arbitrator pursuant to
the clause (i) of this paragraph, then such Fair Market Rent shall
be determined by a single arbitrator in accordance with the
provisions of the Commercial Arbitration Act S.B.C. 1986, c. 3 and
amendments thereto or legislation in substitution therefore.
DEFINITIONS - LANDLORD AND TENANT
1.02 Unless the context otherwise requires, the word "Landlord" wherever it is
used herein shall be construed to include and shall mean the Landlord, its
successors and/or assigns, and the word "Tenant" shall be construed to include
and shall mean the Tenant, and the executors, administrators, successors and/or
assigns of the Tenant and when there are two or more tenants, or two or more
persons bound by the Tenant's covenants herein contained, their obligations
hereunder shall be joint and several; the word "Tenant" and the personal pronoun
"it" relating thereto and used therewith shall be read and construed as
"Tenants", and "his", "her", "its", or "their" respectively, as the number and
gender of the party or parties referred to each require and the number of the
verb agreeing therewith shall be construed so as to agree with the said word or
pronoun so substituted.
CONSTRUCTION OF LEASE TERMS
1.03 All provisions of this Lease are to be construed as covenants and
agreements as though the words importing such covenants and agreements were used
in each separate provision hereof. If any provision or provisions of this Lease
are illegal or not enforceable, it or they shall be considered separate and
severable from this Lease and its remaining provisions shall remain in force and
be binding upon the parties hereto as though the said provision or provisions
had never been included.
CAPTIONS
1.04 The captions appearing within the body of this Lease have been inserted as
a matter of convenience and for reference only and in no way define, limit or
enlarge the scope or meaning of this Lease or of any provision hereof.
CALCULATION OF "TENANT'S FLOOR AREA" AND
"NET RENTABLE AREA OF THE BUILDING"
1.05 "Tenant's Floor Area" and "Net Rentable Area of the Building" shall be
calculated from time to time as follows:
(a) SINGLE TENANCY FLOOR The net rentable area, whether above or below grade,
shall be calculated (from dimensioned Architect's drawings) to the inside face
of the glass on outer Building walls. It shall include all space within outer
Building walls except for stairs, elevator shafts, and flues and stacks for
washrooms. No deduction shall be made for washrooms, janitor closets, or
electrical or telephone cupboards within and servicing that floor or for any
other rooms, corridors or areas available to the tenant on that floor for its
use, furnishings or personnel, or for any columns or projections located wholly
or partially within the space, or for any enclosures, ducts, flues, piping or
rooms used for the purpose of cooling, heating or ventilating.
(b) MULTIPLE TENANCY FLOOR The net rentable area, whether above or below grade,
shall be the sum of all rentable spaces on that floor with the rentable space of
each office on such floor being calculated (from dimensioned Architect's
drawings) to the inside face of the glass as described above for a single
tenancy floor, to the face of permanent interior walls, to the centre-line of
partitions forming public corridors, and to the centre-line of partitions
separating adjoining rentable spaces. No deductions shall be made for any
columns or projections located wholly or partially within the rentable space, or
for any enclosures around the periphery of the Building used for the purpose of
cooling, heating or ventilating.
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The common area of an office floor, which includes all elevator lobbies,
corridors, washrooms, janitor closets and electrical and telephone cupboards
contained on that floor, any enclosures, ducts, flues, piping or rooms used for
the purpose of heating or cooling or ventilating and not included above shall be
computed by deducting the net rentable space based on multiple tenancy from the
net rentable space based on single tenancy and shall be allocated pro rata to
the net rentable space of Tenant's premises on that floor to determine Tenant's
Floor Area.
NET LEASE
1.06 The Tenant acknowledges and agrees that it is intended that this Lease is a
completely carefree net lease to the Landlord, except as expressly herein set
out, that the Landlord is not responsible during the Term for any costs,
charges, expenses and outlays of any nature whatsoever arising from or relating
to the Leased Premises, or the use and occupancy thereof, or the contents
thereof or the business carried on therein, and the Tenant shall pay all
charges, impositions, costs and expenses of every nature and kind relating to
the Leased Premises except as expressly herein set out.
LEASED PREMISES
2.01 In consideration of the Rent, covenants and agreements hereinafter reserved
and contained on the part of the Tenant to be respectively paid, observed and
performed, the Landlord hereby demises and leases to the Tenant the Leased
Premises, together (subject to Section 17.01 hereof) with the right of the
Tenant, the Tenant's employees, agents, suppliers and persons having business
with the Tenant in common with the Landlord, its other tenants, subtenants and
all others entitled thereto to the use of the following:
(a) the entrance foyer and lobby of the Building;
(b) the corridors and lavatories on the floor(s) of the Building on
which the Leased Premises are situate;
(c) public entrance doors, halls, stairways, passages, elevators, in
the Building; and
(d) the shipping and receiving areas in Harbour Centre designated from
time to time by the Landlord.
TERM OF LEASE
3.01 TO HAVE AND TO HOLD the Leased Premises unto the Tenant for and during the
Term subject to the payment of Rent and the fulfilment by the Tenant of the
covenants and conditions hereinafter set forth.
RENT
4.01 The Tenant shall pay without deduction, set-off or abatement to the
Landlord or to such other party as the Landlord may designate, yearly and every
year during the Term, a rent of the amount set out in Section 4 of Schedule 2 in
lawful money of Canada payable in equal consecutive monthly instalments of the
amount set out in Section 5 of Schedule 2 in advance on the first day of each
month during the Term, the first of such payments to be made on the Commencement
Date. If the Term commences on any day other than the first or expires on any
day other than the last day of a month, rent for the fractions of a month at the
commencement and at the end of the Term shall be adjusted pro rata on a per diem
basis. If the Tenant shall commence to do business from the Leased Premises
prior to the Commencement Date the Tenant shall pay during such period a pro
rata rental calculated on a per diem basis. The Tenant, if requested by the
Landlord, shall deliver to the Landlord at the beginning of each year of the
Term, a series of monthly postdated cheques for such year for the amount of Rent
payable hereunder.
ADJUSTMENT OF RENT WHEN AREAS ARE MEASURED AND CHANGED
4.02 PROVIDED, that if the Tenant's Floor Area was estimated by or on behalf of
the Landlord for the purposes of this Lease because the rentable area thereof
could not be accurately calculated prior to the execution of the Lease, or if
the rentable area of the Leased Premises changes at any time during the Term,
then, when the rentable area of the Leased Premises can be accurately calculated
and if the estimate previously made was not correct or has changed, the Tenant's
Floor Area shall then be calculated as set forth in Section 1.05 and the
appropriate adjustments made with respect to Rent payable under this Lease.
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COMMENCEMENT AND CONDUCT OF BUSINESS
5.01 The Tenant shall commence its business in the Leased Premises on the
Commencement Date and thereafter shall operate its business in the whole of the
Leased Premises in a reputable manner and in compliance with the provisions of
this Lease and the requirements of all applicable governmental laws and
regulations during all Business Days during the Term hereof, provided that
nothing in this Section shall require the Tenant to carry on business during any
period prohibited by any law or by-law regulating or limiting the hours during
which such business may be carried on.
BUSINESS AND OTHER TAXES
6.01 The Tenant shall pay all taxes levied, rates, imposed, charged or assessed
against and in respect of the Tenant's occupancy of the Leased Premises or in
respect of the personal property, trade fixtures, furniture and facilities of
the Tenant or the business or income of the Tenant on and from the Leased
Premises if, as and when the same become due, and will indemnify and keep
indemnified the Landlord from and against all payment of all loss, costs,
charges and expenses occasioned by or arising from any and all such taxes, and
also if the Tenant or any person occupying the Leased Premises or any part
thereof shall elect to have the Leased Premises thereof assessed for Separate
School taxes, the Tenant shall pay to the Landlord as soon as the amount of the
Separate School taxes is ascertainable, any amount by which the Separate School
taxes exceed the amount which would have been payable for school taxes had such
election not been made as aforesaid.
The Tenant further covenants and agrees that upon written request of the
Landlord the Tenant will promptly deliver to it for inspection receipts for
payment of all taxes payable by the Tenant under this Section 6.01 which were
due and payable up to one (1) month prior to such request, and in any event will
furnish the Landlord if requested by the Landlord, evidence of such payments
satisfactory to the Landlord before the 21st day of January in each year
covering payments for the preceding year.
TAX ON TENANT'S LEASEHOLD IMPROVEMENTS, MACHINERY TAX
7.01 The Tenant shall pay to the Landlord as additional rental in accordance
with Section 12.01 hereof, in respect of each applicable tax year, an amount
equal to that portion of the Tax for such tax year as reasonably determined by
the Landlord, which may reasonably be regarded as being attributable to the
fixtures, improvements, installations, alterations, additions, equipment and
machinery from time to time made, erected or installed in the Leased Premises by
or on behalf of the Tenant or by or on behalf of any previous occupant of the
Leased Premises.
TAX ON LEASED PREMISES
8.01 The Tenant shall (i) pay as additional rental to the Landlord or to the
taxing authorities if the Landlord so directs, and discharge in each year during
the Term and within the times provided for by the taxing authorities, all Taxes
that are levied, rated, charged or assessed from time to time against or with
respect to the Leased Premises or any part thereof, on the basis of a separate
real property tax bill and separate real property assessment notice rendered by
any lawful taxing authority; (ii) provide the Landlord within ten (10) days
after demand, with a copy of any separate tax bills and assessment notices for
the Leased Premises or any part thereof; (iii) promptly deliver to the Landlord
receipts evidencing the payment of all such Taxes payable to any such taxing
authorities as aforesaid and furnish such other information in connection
therewith as the Landlord reasonably requires; and (iv) pay as additional rent
its Proportionate Share of all Taxes levied, rated, charged or assessed against
the Common Areas and Facilities on the basis of a separate tax bill for the
Common Areas and Facilities, and as the Landlord shall reasonably allocate to
the tenants of the Building; and (v) pay to the federal, provincial or municipal
authority imposing the same all service, business transfer, transaction value,
ad valorem or other taxes by whatever name called, if any, assessed upon and as
a direct result of the payment of rent hereunder as often as such taxes become
due and whether or not such taxes are applicable on the date of the execution of
this lease or become applicable thereafter. In the event that such taxes are by
statute, by-law or regulation, imposed upon or payable by the Landlord as
recipient of the rent, the Tenant shall reimburse the Landlord for the full
amount of such taxes within thirty (30) days of such taxes becoming due.
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TAX ON LANDS NOT SEPARATELY ASSESSED
9.01 If, with respect to any Taxes, there are not separate real property tax
bills and separate real property assessment notices for the Leased Premises and
the Common Areas and Facilities the Tenant shall pay within ten (10) days after
demand therefore by the Landlord, as additional rental, a share (the "Tenant's
Share"), as reasonably allocated to the Leased Premises by the Landlord of all
such Taxes which are levied, rated, charged or assessed by any lawful authority
against, or in relation to Harbour Centre. The Tenant's Share of such Taxes
shall be determined as follows:
The Landlord shall reasonably allocate any Taxes for which separate real
property tax bills and separate real property assessment notices are not
issued, firstly as between the Building and the other improvements
comprising Harbour Centre; and secondly as between each of the
individual leasable premises within the Building; in each case on such
basis as the Landlord in its sole opinion determines equitable, having
regard, among other things, to the various uses of the premises within
Harbour Centre and the Building intended for leasing, the cost of
original construction and the location of each of the individual
leasable premises within the Building.
The Tenant shall pay such portion of the Taxes allocated to the Leased Premises
as aforesaid. The foregoing payment constitutes the Tenant's Share of Taxes and
shall be made in accordance with Section 12.01.
PER DIEM ADJUSTMENT OF TAXES
10.01 If the Term of this Lease does not commence or end at the beginning or end
of a calendar year, respectively, the Taxes that the Tenant is required to pay
pursuant to Sections 8.01 and 9.01 hereof shall be subject to a per diem
adjustment based upon a period of 365 days.
OPERATING COSTS
11.01 The Tenant shall pay to the Landlord as additional rental in accordance
with Section 12.01 hereof the Tenant's Proportionate Share of Operating Costs
during each year of the Term. If the Term does not commence or end at the
beginning or end of a calendar year, respectively, such amount payable by the
Tenant for the appropriate periods of the Term shall be estimated by the
Landlord acting reasonably and reduced proportionately on a per diem basis.
PAYMENT OF ESTIMATED ADDITIONAL RENTALS
12.01 Any additional rentals payable by the Tenant under Sections 7.01, 8.01,
9.01 and 11.01 hereof shall be paid as follows unless otherwise provided:
(a) In each year of the Term the Tenant shall pay to the Landlord
monthly in advance one-twelfth (1/12th) of the amount of such
additional rentals payable under Sections 7.01, 8.01, 9.01 and 11.01
for each year of the Term as reasonably estimated by the Landlord in
advance to be due from the Tenant. Such estimate may be adjusted by
the Landlord and the Tenant shall pay instalments of such additional
rentals according to such estimate, as adjusted.
(b) If the aggregate amount of such additional rental payments made by
the Tenant in any year of the Term should be greater than such
additional rentals due for such year, then should the Tenant not be
otherwise in default hereunder, the amount of such excess will be
applied by the Landlord to the next succeeding instalments of such
additional rentals due hereunder; and if there be any such excess
for the last year of the Term, the amount thereof will be refunded
by the Landlord to the Tenant within thirty (30) days after the
Landlord's financial statements have been prepared for the
Landlord's fiscal year during which the expiration or earlier
termination of the Term occurs provided the Tenant is not otherwise
in default under the terms of the Lease at the date of expiry or
earlier termination of this Lease.
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(c) Notwithstanding the foregoing, if the Landlord is required to prepay
any amount which it is entitled to collect in whole or in part from
the Tenant or if the Landlord is required to pay any such amount
more frequently than required as at the Commencement Date the Tenant
shall pay to the Landlord its portion of such amount calculated in
accordance with this Lease forthwith upon demand.
ADDITIONAL ELECTRICITY CHARGES
13.01 If, in the Landlord's reasonable opinion, the Tenant causes any extra or
unusual power consumption beyond the average power consumption of other tenants
in the Building, including, by way of example only, that caused by special
equipment, by multiple shift occupancy or by occupancy during other than Normal
Business Hours then the Landlord may estimate the cost of such extra or unusual
power consumption and charge such cost directly to the Tenant. The Tenant shall
pay any such costs to the Landlord on written demand as additional rent.
REPLACEMENT OF BULBS, TUBES, BALLASTS AND LIGHT FIXTURE PARTS
14.01 The Landlord shall have the exclusive right to attend to any replacement
of electric light bulbs, tubes and light fixture parts in the Leased Premises
throughout the Term. The Landlord may adopt a system of relamping and
reballasting periodically on a group basis in accordance with good practice.
COST OF METERS
14.02 The Tenant covenants to pay for the cost of any metering which may be
requested by the Tenant to be installed by the Landlord in the Building for the
purpose of determining any utility (including electricity and water) consumed in
the Leased Premises or which may be reasonably required by the Landlord to
measure any excess usage of electricity or water.
TENANT'S USE OF ELECTRICITY
14.03 The Tenant's use of electricity in the Leased Premises shall be for the
operation of lighting and business machines, electrical fixtures such as
personal computers and other small office machines and lamps and shall not at
any time exceed the capacity of any of the electrical conductors and equipment
in or otherwise serving the Leased Premises.
In order to ensure that such capacity is not exceeded and to avert
possible adverse effect upon the Building's electrical services, the Tenant
shall not, without the Landlord's prior written consent in each instance,
connect any additional fixtures, appliances or equipment (other than normal
office electrical fixtures, lamps, personal computers and similar small office
machines) to the Building's electrical distribution system or make any
alteration or addition to the electric system of the Leased Premises existing at
the commencement of the Term. If the Landlord grants such consent, the cost of
all additional risers and other equipment required therefor shall be paid as
additional rental by the Tenant to the Landlord upon demand. As a condition to
granting such consent, the Landlord may require the Tenant to agree to an
increase in the additional rental for electricity by an amount which will
reflect the increased cost to the Landlord of the additional services to be
furnished by the Landlord.
COST OF REPAIRS PAYABLE BY TENANT
15.01 If the Building, other parts of Harbour Centre, the elevators, boilers,
engines, pipes and other apparatus (or any of them) used for the purpose of
climate control of the Building or other parts of Harbour Centre or operating
the elevators, or if the water pipes, drainage pipes, electric lighting or other
equipment of the Building or other parts of Harbour Centre or the roof or
outside walls of the Building or other parts of Harbour Centre require repair or
are damaged or destroyed through the negligence, carelessness or misuse of the
Tenant, his servants, agents, employees or anyone permitted by him to be in the
Building, or through him or them in any way stopping up or injuring the heating
apparatus, elevators, water pipes, drainage pipes or other equipment or part of
the Building or Harbour Centre, the cost of the necessary repairs, replacements
of alterations shall be borne by the Tenant who shall pay the same to the
Landlord as additional rental forthwith on demand.
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REPAIR OF LEASED PREMISES BY TENANT
15.02 The Tenant shall repair the Leased Premises, including without limiting
the generality of the foregoing, all interior partitions, fixtures and leasehold
improvements in the Leased Premises and all electrical and telephone outlets and
conduits and any fixtures and shelving, and special mechanical and electrical
equipment not a normal part of the Building installed by or for the Tenant,
reasonable wear and tear, damage resulting from structural defect, fire,
lightning and tempest and other casualty with respect to which the Landlord has
received proceeds of insurance only excepted; and the Landlord may enter and
view the state of repair and the Tenant will forthwith repair according to
written notice in writing, subject only to the foregoing exceptions.
PEACEABLE SURRENDER
15.03 At the end of the Term or upon the sooner termination of the Term, the
Tenant shall peaceably surrender and yield up the Leased Premises to the
Landlord in good repair and in a state of broom cleanliness, subject only to the
exceptions set forth in Sections 15.02 and 43.01 hereof.
TIDY CONDITION OF LEASED PREMISES
15.04 The Tenant agrees to leave the Leased Premises in a reasonably tidy
condition at the end of each Business Day for the purpose of the performance of
the Landlord's cleaning services.
OCCUPATION OF LEASED PREMISES
16.01 The Tenant shall not permit any part of the Leased Premises to be used or
occupied by any persons other than the Tenant, any subtenants permitted under
Sections 16.02 and 16.03, and the employees of the Tenant and of any such
permitted subtenant, and shall not permit any part of the Leased Premises to be
used or occupied by any licensee or concessionaire, or permit any persons to be
upon the Leased Premises other than the Tenant, such permitted subtenants, and
their respective employees, customers and others having lawful business with
them.
ASSIGNMENT, SUBLETTING, PARTING WITH POSSESSION
16.02 The Tenant shall not assign this Lease nor sublet nor part with possession
of all or part of the Leased Premises without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld; provided however,
such leave to any assignment or subletting shall not relieve the Tenant from its
obligations for the payment of Rent and for the full and faithful observance and
performance of the covenants, terms and conditions herein contained during the
Term and any Renewal Term.
LANDLORD'S RIGHTS
16.03 Provided further and notwithstanding anything hereinbefore set forth:
(a) If at any time of any proposed assignment or subletting, and from
time to time, the Tenant proposes to assign this Lease or sublet all
or part of the Leased Premises, the Tenant shall send to the Landlord
a notice in writing setting forth the name and address of the
proposed assignee or subtenant and such information as to the nature
of its business and its financial responsibility and standing as the
Landlord may reasonably require, and all the terms and conditions of
the proposed assignment or sublease. Within fifteen (15) days from
the submission of such notice of the Tenant the Landlord may elect to
terminate this Lease by giving to the Tenant a notice of intention to
do so, fixing a date of termination not sooner than the date the
subtenant or assignee proposes to occupy the Leased Premises and the
Tenant shall deliver up vacant possession of the Leased Premises on
such date of termination and the Lease shall terminate and
adjustments shall be made in Rent, Taxes and other charges payable by
any party under this Lease. If the Landlord fails to elect to
terminate this Lease pursuant to the foregoing, the provisions of
Sections 16.02, 16.03(d) and 16.03(e) shall apply to such assignment
or subletting.
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(b) A notice by the Tenant to the Landlord pursuant to Section 16.03(a) may
be withdrawn by the Tenant at any time prior to the earlier of the
proposed effective date specified therein and the day which is ten days
after the date of the Landlord's notice responding thereto.
(c) The Tenant shall have the right without the consent of the Landlord,
to assign this Lease to a company incorporated or to be incorporated
by the Tenant provided that the Tenant owns or beneficially controls
all the issued and outstanding shares in the capital of the company.
Such assignment shall, however, not relieve the Tenant from its
obligations for the payment of rent and for the full and faithful
observance and performance of the covenants, terms and conditions
herein contained.
(d) Any document or consent evidencing an assignment of this Lease or a
subletting of all or part of the Leased Premises if consented to by
the Landlord shall be prepared by the Landlord or its solicitors and
all legal costs with respect thereto together with the amount of
$250.00 on account of the Landlord's administrative costs shall be
paid by the Tenant to the Landlord forthwith upon demand as
additional rent. Any consent by the Landlord shall be subject to the
Tenant causing such assignee or sublessee to promptly execute an
agreement directly with the Landlord agreeing to be bound by all of
the terms, covenants and conditions contained in this Lease as if
such assignee or sublessee had originally executed this Lease as
Tenant.
(e) Any assignment or purported assignment of this Lease (except in
accordance with Section 16.03 (c)), subletting or licensing, or
purported subletting or licensing of all or part of the Leased Premises
without the Landlord's written consent as herein provided shall be null
and void.
TRANSFER OF SHARES OF TENANT
16.04 If the Tenant is a corporation or if this Lease is assigned to a
corporation, and if at any time during the Term any part or all of the corporate
shares or voting rights of shareholders shall be transferred by sale,
assignment, bequest, inheritance, trust, operation of law or other disposition,
or treasury shares be issued so as to result in a change in the control of said
corporation by reason of ownership of greater than fifty percent (50%) of the
voting shares of the corporation or otherwise, such a change of control shall be
deemed to be an assignment of this Lease and the Tenant shall forthwith notify
the Landlord in writing of such change and the Landlord shall have the right to
terminate this Lease and the Term, at any time after such change of control by
giving the Tenant sixty (60) days prior written notice of such termination.
TENANT'S RECORDS OF SHAREHOLDINGS
16.05 The Tenant shall, upon request of the Landlord, make available to the
Landlord from time to time for inspection or copying or both, all books and
records of the Tenant which, alone or with other data, show the applicability or
inapplicability of Section 16.04. If any shareholder of the Tenant shall, upon
request of the Landlord, fail or refuse to furnish to the Landlord any data
verified by the affidavit of such shareholder or other credible person, which
data, alone or with other data show the applicability of Section 16.04 then the
Landlord may terminate this Lease on sixty (60) days written notice.
RULES AND REGULATIONS
17.01 The Tenant and the Tenant's employees and all persons visiting and doing
business with the Tenant in the Leased Premises shall be bound by and shall
observe the Rules and Regulations attached to this Lease as Schedule 3 and any
further and other reasonable rules and regulations made hereafter by the
Landlord relating to the Building or to the Leased Premises of which notice in
writing shall be given to the Tenant and all such rules and regulations shall be
deemed to be incorporated into and form part of this Lease.
CHANGES TO RULES AND REGULATIONS
17.02 The Landlord shall have the right to make such other and further
reasonable rules and regulations as in its judgement may from time to time be
needed for the safety, security, care and cleanliness of the Building or Harbour
Centre and for the preservation of good order therein, and the same shall be
kept and observed by the Tenant, its employees and invitees.
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USE OF LEASED PREMISES
18.01 The Leased Premises shall not be used other than for the purposes set out
in Section 7 of Schedule 2 and only for such purposes as comply with the terms
of this Lease and all applicable laws, by-laws, regulations or other
governmental ordinances from time to time in existence and the Tenant shall not
carry on or permit to be carried on in the Leased Premises any retail trade or
business.
INCREASE IN INSURANCE PREMIUMS
18.02 The Tenant agrees that it will not keep, use, sell or offer for sale in or
upon the Leased Premises any article which may be prohibited by any insurance
policy in force from time to time covering the Building. In the event that the
Tenant's occupancy or conduct of business in, or on the Leased Premises, whether
or not the Landlord has consented to the same, results in any increase in
premiums for the insurance carried from time to time by the Landlord in respect
of the Building, the Tenant shall pay any such increase in premiums as
additional rent within ten (10) days after bills for such additional premiums
shall be rendered by the Landlord. In determining whether increased premiums are
a result of the Tenant's use or occupancy of the Leased Premises a schedule
issued by the person computing the insurance rate on the Building showing the
various components of such rate shall be conclusive evidence of the several
items and charges which make up such rate. The Tenant shall promptly comply with
all reasonable requirements of the insurance authority or of any insurer now or
hereafter in effect relating to the Leased Premises.
TENANT'S INSURANCE
19.01
(a) The Tenant shall during any rent-free period and the entire Term
hereof, at its sole cost and expense, take out and keep in full
force and effect and in the names of the Tenant, the Landlord and
the mortgagees of the Landlord as their respective interests may
appear, the following insurance:
(i) Insurance upon property of every description and kind owned
by the Tenant or for which the Tenant is legally liable, or
installed by or on behalf of the Tenant (and which is
located within the Building), including without limitation
furniture, fittings, installations, alterations, additions,
partitions, fixtures and anything in the nature of a
leasehold improvement, in an amount not less than ninety
percent (90%) of the full replacement cost thereof, with
coverage against at least, the perils of fire and standard
extended coverage including sprinkler leakages (where
applicable), earthquake, flood and collapse. If there is a
dispute as to the amount which comprises full replacement
cost, the decision of the Landlord or the mortgagees of the
Landlord shall be conclusive;
(ii)
Business interruption insurance in such amount as will
reimburse the Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Leased
Premises or to the Building as a result of such perils;
(iii)
Public liability and property damage insurance including
personal injury liability, contractual liability, non-owned
automobile liability and owners' and contractors' protective
insurance coverage with respect to the Leased Premises and the
Tenant's use of any part of the Building and which coverage
shall include the activities and operations conducted by the
Tenant and any other person on the Leased Premises and shall
not exclude water damage. Such policies shall be written on a
comprehensive basis with limits of not less than $5,000,000.00
for bodily injury to any one or more persons, or property
damage, and such higher limits as the Landlord or the
mortgagees of the Landlord may reasonably require from time to
time, and all such policies shall contain a severability of
interest clause and a cross liability clause;
(iv)
Tenant's legal liability insurance for the full replacement
cost of the Leased Premises, such coverage to include the
activities and operations conducted by the Tenant and any other
persons on the Leased Premises; and
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(v) Any other form or forms of insurance as the Tenant or the
Landlord or the mortgagees of the Landlord may reasonably
require from time to time in form, in amounts and for insurance
risks against which a prudent tenant would protect itself.
(b) All policies required to be written on behalf of the Tenant pursuant
to subsections 19.01(a)(i) and 19.01(a)(ii) shall contain a waiver
of any subrogation rights which the Tenant's insurers may have
against the Landlord and against those for whom the Landlord is, in
law, responsible, whether any such damage is caused by the act,
omission or negligence of the Landlord or by those for whom the
Landlord is, in law, responsible.
(c) All policies shall be taken out with insurers acceptable to the
Landlord and in a form satisfactory from time to time to the
Landlord. The Tenant agrees that certificates of insurance or, if
required by the Landlord or the mortgagees of the Landlord,
certified copies of each such insurance policy and evidence of
all renewals thereof will be delivered to the Landlord as soon as
practicable after the placing or renewing of the required
insurance. All policies shall contain an undertaking by the
insurers to notify the Landlord and the mortgagees of the
Landlord in writing not less than thirty (30) days prior to any
material change, cancellation or other termination thereof.
(d) The Tenant covenants and agrees that in the event of damage or
destruction to the leasehold improvements in the Leased Premises
covered by insurance required to be taken out by the Tenant
pursuant to subsection 19.01(a)(i), the Tenant will use the
proceeds of such insurance for the purposes of repairing or
restoring such leasehold improvements. In the event of damage to
or destruction of the Building entitling the Landlord to
terminate this Lease pursuant to Sections 46.02 or 46.03 hereof,
then, if the Leased Premises have also been damaged, the Tenant
will pay to the Landlord all of its insurance proceeds relating
to the leasehold improvements in the Leased Premises and if the
Leased Premises have not been damaged, the Tenant will deliver to
the Landlord, in accordance with the provisions of this Lease,
the leasehold improvements and the Leased Premises.
CANCELLATION OF INSURANCE
20.01 If any insurance policy upon the Building or any part thereof, including
without limitation, the insurance referred to in Section 45.01, shall be
cancelled or shall be threatened by the insurer to be cancelled or the coverage
thereunder is reduced in any way by reason of the use or occupation of the
Leased Premises or any part thereof by the Tenant or by any assignee or
subtenant of the Tenant or by anyone permitted by the Tenant to be upon the
Leased Premises, the Landlord may, at its option, enter upon the Leased Premises
and attempt to remedy such condition and the Tenant shall upon demand pay the
cost thereof to the Landlord as additional rent. In the event that the Landlord
is unable to remedy such condition or elects not to attempt to remedy such
condition, the Landlord may re-enter the Leased Premises forthwith and thereupon
the provisions of Section 52.01 hereof shall apply, notwithstanding the
provisions of Section 49.01 hereof. The Landlord shall not be liable for any
damage or injury caused to any property of the Tenant or of others located on
the Leased Premises as a result of such entry.
OBSERVANCE OF LAW
21.01 The Tenant shall comply with all provisions of law including without
limitation, federal and provincial legislative enactments, building by-laws, and
any other governmental or municipal regulations which relate to the
partitioning, equipment, operation and use of the Leased Premises, and to the
making of any repairs, replacements, alterations, additions, changes,
substitutions or improvements of or to the Leased Premises. And the Tenant shall
comply with all police, fire and sanitary regulations imposed by any federal,
provincial or municipal authorities, or made by insurance underwriters, and
shall observe and obey all governmental and municipal regulations and other
requirements governing the conduct of any business conducted in the Leased
Premises. Notwithstanding the foregoing it shall be the Landlord's
responsibility to comply with federal and provincial legislative enactments,
building by-laws and any other governmental or municipal regulations which
relate to the Building insofar as they may require changes of a structural
nature in the Building, provided nevertheless that such changes shall be the
responsibility of the Tenant if they are changes or
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additions required to be made in or to the Tenant's improvements or partitioning
(whether above or below the ceiling tile) whether such changes be considered
structural or not or if such changes are required by reason of the nature of the
use or improvements contemplated or made by the Tenant.
WASTE AND NUISANCE
22.01 The Tenant shall not do or suffer any waste or damage or disfiguration or
injury to the Leased Premises or the fixtures and equipment thereof and shall
not place therein any safe, heavy business machinery, computers, data processing
machines, or other heavy things without first obtaining the consent in writing
of the Landlord and, if requested by the Landlord, by the Landlord's Architect,
and shall not use or permit to be used any part of the Leased Premises for any
dangerous, noxious or offensive trade or business, and shall not cause or permit
any nuisance in, at, on or from the Leased Premises.
ENTRY BY LANDLORD
23.01 The Tenant shall permit the Landlord, its servants or agents to enter upon
the Leased Premises at any reasonable time and from time to time for the purpose
of inspecting and of making repairs, alterations or improvements to the Leased
Premises or to the Building, or for the purpose of having access to the
underfloor ducts, or to the access panels to mechanical shafts (which the Tenant
agrees not to obstruct), and the Tenant shall not be entitled to compensation
for any inconvenience, nuisance or discomfort occasioned thereby. The Landlord,
its servants or agents may at any time and from time to time enter upon the
Leased Premises for the purposes provided for in Section 20.01 hereof, and such
entry by the Landlord shall not be or be deemed to be re-entry. The Landlord
shall have the right to enter the Leased Premises in order to check, calibrate,
adjust and balance controls and other parts of the heating, ventilation and
climate control system during Normal Business Hours upon reasonable notice.
Provided that the Landlord shall proceed under this Section 23.01 in such manner
as to minimize interference with the Tenant's use and enjoyment of the Leased
Premises. Entry by the Landlord upon the Leased Premises or any part or parts
thereof from time to time pursuant to this Section 23.01 shall not be or be
deemed to be a re-entry.
INDEMNIFICATION OF LANDLORD
24.01 The Tenant shall indemnify the Landlord and save it harmless from and
against any and all loss (including loss of rentals payable by the Tenant
pursuant to this Lease), claims, actions, damages, liability and expense in
connection with loss of life, personal injury or damage to property arising from
any occurrence in, upon or at the Leased Premises, or the occupancy or use by
the Tenant of the Leased Premises or any part thereof, or occasioned wholly or
in part by any act or omission of the Tenant, its agents, contractors,
employees, servants, licensees, concessionaires or invitees or by anyone
permitted to be on the Leased Premises by the Tenant. In case the Landlord
shall, without fault on its part, be made a party to any litigation commenced by
or against the Tenant, then the Tenant shall protect and hold the Landlord
harmless and shall pay all costs, expenses and reasonable legal fees incurred or
paid by the Landlord in connection with such litigation.
EXHIBITING PREMISES
25.01 The Tenant shall permit the Landlord and its agents to exhibit the Leased
Premises to prospective tenants during Normal Business Hours of the last six (6)
months of the Term and to exhibit the Leased Premises at any time for the
purposes of the Landlord's own financing and refinancing and to exhibit the
Leased Premises to any prospective purchaser of the Landlord's interest in the
Building.
ALTERATIONS BY TENANT
26.01 The Tenant will not make, install or erect in or to the Leased Premises
any installations, alterations, additions, or partitions without submitting the
drawings and specifications therefor to the Landlord and obtaining the
Landlord's prior written consent in each instance, which consent shall not be
unreasonably withheld. The Tenant must obtain the Landlord's prior written
consent to any change or changes in such drawings or specifications submitted as
aforesaid and shall pay the cost to the Landlord of having its architects
examine such changes prior to proceeding with any work based on such drawings or
specifications. Such work shall be performed by contractors engaged by the
Tenant under written contract approved in writing by the Landlord and subject to
all reasonable conditions which the Landlord
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may impose but the Landlord may at its option require that the Landlord's
contractors be engaged for any mechanical or electrical work or other leasehold
improvement. Any work performed by or for the Tenant shall be performed by
competent workmen whose labour union affiliations are not incompatible with
those of any workmen who may be employed in the Building or in Harbour Centre by
the Landlord, its contractors or subcontractors. The Tenant shall submit to the
Landlord's supervision over construction and promptly pay to the Landlord's or
the Tenant's subcontractors as the case maybe, when due, the cost of all such
work and of all materials, labour and services involved therein and of all
decorations and changes in the Building, its equipment or services, necessitated
thereby. The Tenant covenants that the Tenant will not suffer or permit any
Builders' or other liens for work, labour, services or materials ordered by the
Tenant or for the cost of which the Tenant may be in any way obligated or any
conditional sales agreements or chattel mortgages to attach to the Leased
Premises or to the Building or any part thereof and that whenever and so often
as any such liens or claims therefor or conditional sales agreements or notice
thereof or chattel mortgages shall be filed or registered the Tenant shall
within twenty (20) days after the Tenant has notice thereof procure the
discharge thereof by payment or by giving security or in such other manner as is
or may be required or permitted by law. The Tenant shall allow the Landlord to
post and keep posted on the Leased Premises any notice which the Landlord may
wish to post under the provisions of the Builders' Lien Act R.S.B.C. 1979 c. 40)
or any legislation which may amend or replace such Act or any similar
legislation. The Tenant shall, at its own cost and expense, take out or cause to
be taken out any additional insurance reasonably required by the Landlord to
protect the Landlord's and the Tenant's interest during the period of
alteration. The Tenant shall be responsible to obtain and pay for any building
permits and other permits.
ALTERATION OF BUILDING
26.02 The Landlord hereby reserves the right at any time and from time to time
to make changes in, additions to, subtractions from or rearrangements of the
Building including without limitation, all improvements at any time thereon, all
entrances thereto and exits therefrom, and to grant, modify and terminate
easements or other agreements pertaining to the use and maintenance of all or
parts of the Building.
ALTERATION OF PIPES, CONDUITS, ETC.
26.03 The Landlord shall have the right to use and make changes or additions to
the pipes, wires, conduits and ducts in the Leased Premises where necessary to
serve other premises in the Building but not in any way so as to interfere
materially with the use and enjoyment of the Leased Premises so caused. The
Tenant shall not unduly obstruct such pipes, conduits and ducts in the Leased
Premises so as to prevent reasonable access thereto.
ALTERATION OF LEASED PREMISES
26.04 Prior to the Commencement Date the Landlord may alter or relocate the
Leased Premises to the extent found necessary by the Landlord to accommodate
changes in construction design or facilities including major alterations and
relocations but provided always that the Leased Premises as altered or relocated
shall be in all material respects comparable to the Leased Premises as defined
herein.
REPLACEMENT OF GLASS
27.01 The Tenant shall pay the cost of replacement of any glass broken on the
Leased Premises including outside windows and doors of the perimeter of the
Leased Premises (including perimeter windows in the exterior walls) during the
continuance of this Lease, with as good quality and size and in the case of
perimeter windows, with glass of the same type and colour unless the glass shall
be broken by the Landlord, its servants, employees or agents on its behalf.
SIGNS AND ADVERTISING
28.01 The Tenant shall not paint, display, inscribe, place or affix any sign,
picture, advertisement, notice, lettering or direction on any part of the
outside of the Building or in the interior of the Leased Premises and visible
from the outside of the Building. The Landlord may prescribe a uniform pattern
of identification signs for tenants to be placed on the outside of the
entrance-way leading into the Leased Premises and other than such identification
signs, the Tenant shall not paint, display, inscribe, place or affix any sign,
picture, advertisement, notice, lettering or direction on the outside of the
Leased Premises for exterior view without the prior written consent of the
Landlord.
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NAME OF BUILDING
29.01 The Tenant shall not refer to the Building by any name other than that
designated from time to time by the Landlord nor use such name for any purpose
other than that of the business address of the Tenant, provided that the Tenant
may use the municipal number of the Building assigned to it instead of the name
of the Building.
SUBORDINATION AND ATTORNMENT
30.01 This Lease is and shall be subject, subordinate and postponed to all
mortgages (including any deed of trust and mortgage securing bonds and all
indentures supplemental thereto) which may now or hereafter charge or affect the
Lands and to all renewals, modifications, consolidations, replacements and
extensions of such mortgages, to the intent that, without execution of any
document other than this Lease, such mortgages and all renewals, modifications,
consolidations, replacements and extensions thereof shall have priority over
this Lease notwithstanding the respective dates of execution or registration
thereof and notwithstanding the provisions of this Section 30.01 which follow.
Without limiting the generality of the foregoing, the Tenant agrees to execute
promptly any document in confirmation of such subordination, postponement and
priority which the Landlord may request and the Tenant hereby irrevocably
constitutes the Landlord the agent or attorney of the Tenant for the purpose of
executing any such document and of making application in the name of the Tenant
at any time and from time to time to register postponements of this Lease in
favour of any such mortgage or any renewal, modification, consolidation,
replacement or extension of any such mortgage in order to give effect to the
foregoing provision of this Section 30.01. In the event of any mortgagee of the
Landlord going into possession of the Lands or the Building, the Tenant shall
attorn to and become the Tenant of such mortgagee.
ACCEPTANCE OF PREMISES
31.01 The Tenant shall examine the Leased Premises before taking possession
hereunder and unless the Tenant furnishes the Landlord with a notice in writing
specifying any defect in the construction of the Leased Premises or otherwise
within ten (10) days after such taking of possession then the Tenant shall
conclusively be deemed to have examined the Leased Premises and to have found
them in order, and such taking of possession without giving the notice aforesaid
within such ten (10) days shall be conclusive evidence that at the Commencement
Date the Leased Premises were in good order and satisfactory condition, subject
only to latent defects, if any. The Tenant agrees that there is no promise,
representation or undertaking by or binding upon the Landlord with respect to
any alteration, remodelling or redecoration of or installation of equipment or
fixtures in the Leased Premises, except such, if any, as are expressly set forth
in this Lease.
CERTIFICATES
32.01 The Tenant agrees that it will at any time and from time to time upon not
less than ten (10) days prior notice execute and deliver to the Landlord a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or, if modified, stating the modifications and that the same is in
full force and effect as modified), the amount of the annual rent and additional
rent then being paid hereunder, the dates to which the same, by instalments or
otherwise, have been paid, and whether or not there is any existing default on
the part of the Landlord of which the Tenant has notice.
QUIET ENJOYMENT
33.01 The Landlord covenants with the Tenant for quiet enjoyment provided the
Tenant is not in default under this Lease.
LANDLORD'S ADDITIONAL COVENANTS
34.01 The Landlord further covenants with the Tenant as follows:
TAXES AND RATES PAYABLE BY LANDLORD
35.01 The Landlord shall pay all Taxes including without limiting the generality
of the foregoing, water rates with respect to the Lands and the Building, except
such as the Tenant has herein covenanted to pay.
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CLIMATE CONTROL BY LANDLORD
36.01 The Landlord shall provide climate control to the Leased Premises during
Normal Business Hours to maintain a temperature adequate for comfortable
occupancy, except during the making of repairs, alterations or improvements and
provided that the Landlord shall further have no responsibility or liability for
failure to supply climate control service when stopped as aforesaid or when
prevented from so doing by strikes or any cause beyond the Landlord's reasonable
control. Any changes or alterations in the system or ducts through which the
climate control system operates required because of any use of the Leased
Premises not in accordance with the design standards or arrangements of
partitioning prescribed by the Landlord, if such changes can be accommodated by
the Landlord's equipment, shall be made by the Tenant at its cost and expense
but only with the written consent of the Landlord first had and obtained, such
consent not to be unreasonably withheld, and in accordance with drawings and
specifications and by a contractor first approved in writing by the Landlord,
such approval not to be unreasonably withheld. If installation of partitions,
equipment or fixtures by the Tenant necessitates the rebalancing of the climate
control equipment in the Leased Premises the same will be performed by the
Landlord at the Tenant's expense. The Tenant acknowledges that one (1) year may
be required after the Tenant has fully occupied the Leased Premises in order to
adjust and balance the climate control systems.
ENERGY CONSERVATION BY TENANT
36.02 The Tenant covenants with the Landlord:
(a) to cooperate with the Landlord in the conservation of all forms of
energy in the Building, including without limitation the Leased
Premises;
(b) to comply with all laws, by-laws, regulations and orders relating to
the conservation of energy and affecting the Leased Premises or the
Building;
(c) at its own cost and expense to comply with all reasonable requests and
demands of the Landlord made with a view to such energy conservation;
and
(d) that any and all costs and expenses and any capital improvements paid
or incurred by the Landlord in complying with such laws, by-laws,
regulations and orders, so far as the same shall apply to or reasonably
be apportioned to the Building by the Landlord, shall be included in the
Landlord's costs and expenses of maintaining and operating the Building
for the purposes of Section 11.01.
The Landlord shall not be liable to the Tenant in any way for any loss, costs,
damages or expenses whether direct or consequential, paid, suffered or incurred
by the Tenant as a result of any reduction in the services provided by the
Landlord to the Tenant or to the Building as a result of the Landlord's
compliance with such laws, by-laws, regulations or orders.
ELEVATOR SERVICE
37.01 Subject to the Rules and Regulations referred to in Section 17.01, the
Landlord shall furnish elevator service during Normal Business Hours to the
Tenant and its employees and those doing business with the Tenant in common with
others except when repairs are being made, provided that the Tenant and such
employees and all other persons using the same shall do so at their own risk.
ELEVATOR SERVICE INTERRUPTIONS
38.01 There shall be no liability on the Landlord for any claim in respect of
any failure by the Landlord to provide elevator service during any power failure
or other cause beyond the control of the Landlord or by reason of the carrying
out of any repair, maintenance or replacement of elevators, nor shall there be,
consequent upon the foregoing, any repayment of or reduction in the rent
reserved hereby.
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JANITORIAL SERVICES
39.01 When reasonably necessary from time to time the Landlord shall cause the
floors to be swept and windows to be cleaned and the desks, tables and other
furniture of the Tenant to be dusted all in keeping with a first class office
building but with the exception of the obligation to cause such work to be done,
the Landlord shall not be responsible for any act or omission or commission on
the part of the person or persons employed to perform such work and such work
shall be done at the Landlord's direction without interference by the Tenant,
his servants or employees.
WATER AND ELECTRICITY
40.01 The Landlord shall make available hot and cold water and, if available,
chilled water in reasonable quantity and shall make available electricity in
normal quantity provided that, if the Tenant's equipment requires utilities in
excess of normal quantities, facilities to supply excess quantities may be
provided by the Landlord at the sole expense of the Tenant subject to the
following conditions and provided that:
(a) the Landlord's Architect shall determine that such excess facilities
are so required by the Tenant's equipment;
(b) it is within the capabilities of the Landlord and the existing
structure to provide such excess utilities;
(c) the Landlord shall have the right to refuse to supply in the event that
the supplying of additional facilities shall in any way affect the
operation of, the aesthetics of or structure of the Building or in any
way reduce the efficiency of existing electricity, water or other
utility supplied to the Building or any part thereof;
(d) the supplying of additional facilities in order to make the required
utilities available to the Tenant shall be subject to compliance with
all provisions of law including, without limitation, federal and
provincial legislative enactments, building by-laws and other
governmental or municipal regulations which shall in any way relate to
the work necessary to be undertaken to make said utilities available;
and
(e) The Tenant shall pay to the Landlord, as additional rental from time to
time upon demand a charge as determined by the Landlord's Architect for
the supply of chilled water to the Leased Premises.
REPAIR AND MAINTENANCE
41.01 Subject to the other provisions of this Lease imposing obligations in this
respect upon the Tenant, the Landlord shall repair, replace and maintain the
external and structural parts of the Building which do not comprise a part of
the Leased Premises and are not leased to others, janitor and equipment closets
and shafts within the Leased Premises designated by the Landlord for use by it
in connection with the operation and maintenance of the Building, and shall
perform such repairs, replacements and maintenance with reasonable dispatch, in
a good and workmanlike manner, but the Landlord shall not be liable for any
damages, direct, or indirect or consequential, or for damages for personal
discomfort, illness or inconvenience of the Tenant, or the Tenant's servants,
clerks, employees, invitees or other persons by reason of failure of such
equipment, facilities or systems or reasonable delays in the performance of such
repairs, replacements and maintenance, unless caused by the deliberate act or
omission, or the negligence of the Landlord, its servants, agents or employees.
TRADE FIXTURES
42.01 The Tenant may install its usual trade fixtures in the usual manner,
provided such installation does not damage the structure of the Leased Premises
or the Building and provided further that the Tenant shall have submitted
detailed plans and specifications for such trade fixtures to the Landlord and
obtained its prior written consent thereto which consent shall not be
unreasonably withheld. Only new and unused trade fixtures may be installed by
the Tenant. The Tenant will not sell, dispose of or remove any of its fixtures,
goods or chattels from or out of the Leased Premises during the Term without the
consent of the Landlord, unless the Tenant is substituting new fixtures, goods
or chattels of equal or greater value or is bona fide disposing of individual
items which have become excess for the Tenant's purposes; and the Tenant will
not permit its fixtures, goods and chattels (or any of them) to become subject
to any lien, mortgage, charge or encumbrance.
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REMOVAL OF TRADE FIXTURES
42.02 All trade fixtures installed by the Tenant in the Leased Premises shall
remain the property of the Tenant and shall be removed at the expiration of the
Term, or other termination thereof, provided the Tenant shall promptly repair,
at its expense, any damage to the Leased Premises caused by any such removal,
and provided further, that the Tenant shall not at such time be in default under
any covenant or agreement contained herein; and if in default, the Landlord
shall have a lien on such fixtures and apparatus as security against loss or
damage resulting from any such default by the Tenant and said fixtures and
apparatus shall not be removed by the Tenant until such default is cured, unless
otherwise directed by the Landlord.
FIXTURES
43.01 Provided further, any or all installations, alterations, additions,
partitions and fixtures other than trade fixtures in or upon the Leased
Premises, whether placed there by the Tenant or the Landlord or a previous
occupant of the Leased Premises, shall, immediately upon such placement, become
and shall thereafter remain the property of the Landlord without compensation
therefor to the Tenant. Notwithstanding anything herein contained, the Landlord
shall be under no obligation to repair, maintain, replace or insure such
installations, alterations, additions, partitions and fixtures or anything in
the nature of a leasehold improvement made or installed by or on behalf of the
Tenant or a previous occupant of the Leased Premises. The Landlord may elect
that any or all installations made or installed by or on behalf of the Tenant
hereunder or under the provisions of any previous lease of the Leased Premises
to the Tenant to whom this Lease is granted be removed at the expiry or earlier
termination of the Term and it shall be the Tenant's obligation to restore at
its expense the Leased Premises to the condition they were in previous to such
alterations, installations, partitions and fixtures.
TIME FOR REPAIR BY LANDLORD
44.01 If any elevator of the Building or any of the boilers, engines, pipes,
climate control equipment or other apparatus or any of them used for the purpose
of climate control or operating any elevator, or if the water pipes, drainage
pipes, electric lighting or other equipment of the Building get out of repair or
become damaged or destroyed the Landlord shall have a reasonable time in which
to make such repairs or replacements as may be reasonably required for the
resumption of those services to the Leased Premises which it has by this Lease
expressly agreed to provide and the Tenant shall not be entitled to any
compensation or damages therefor. Should any of such equipment of the Building
or elevators become impaired, damaged or destroyed through the deliberate act or
omission, or the negligence of the Tenant or its employees or through it or them
making use of or permitting others to make use of improper paper in the water
closets or in any other manner or way stopping up or injuring such climate
control equipment, elevators, water pipes, drainage pipes, electric lighting or
other equipment, the expense of the necessary repair shall be borne by the
Tenant who shall pay the same to the Landlord upon demand as additional rent.
Nothing in this Section shall, however, obligate the Landlord to provide any
services to the Leased Premises or to make any repairs not herein specifically
required to be provided or made by the Landlord.
LANDLORD'S INSURANCE
45.01 The Landlord covenants and agrees that throughout the Term it will insure
the Building (excluding foundations and excavations) and the machinery, boilers
and equipment contained therein owned by the Landlord (excluding any property
with respect to which the Tenant or other tenants are obliged to insure pursuant
to the provisions of Section 19.01 hereof or pursuant to the corresponding
provisions of their respective leases) against damage by fire and extended
perils coverage in such reasonable amounts as would be carried by a prudent
owner of a similar property. The Landlord will also, throughout the Term, carry
public liability and property damage insurance with respect to the operation of
the Building in reasonable amounts as would be carried by a prudent owner of a
similar property. The Landlord may, but shall not be obliged to, take out and
carry any other form or forms of insurance as it or the mortgagees of the
Landlord may reasonably determine advisable. Notwithstanding any contribution by
the Tenant to the cost of insurance premiums, as provided herein, the Tenant
acknowledges that it has no right to receive any proceeds from any such
insurance policies carried by the Landlord.
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DAMAGE - ABATEMENT OF RENT
46.01 If the Leased Premises or Building are destroyed or damaged to such an
extent that the Leased Premises are totally unfit for occupancy or if reasonable
access thereto shall be impossible, Rent shall abate until the Leased Premises
are repaired or rebuilt. If the Leased Premises are damaged and the damage is
such that the Leased Premises can be partially used, then until such damage
shall have been repaired, Rent shall abate while repairs are in progress by the
same proportion as the area of the Leased Premises rendered unfit for occupancy
is of the Tenant's Floor Area and if the damage or destruction arises from or
out of a casualty against which the Landlord is fully insured, the Landlord
agrees that it will, with reasonable diligence, repair the leased Premises
unless the Tenant is obliged to repair under the terms hereof, or unless this
Lease is terminated pursuant to the provisions of Sections 46.02 or 46.03. The
obligation of the Landlord to repair or rebuild pursuant to this Section 46.01
is conditioned upon the Landlord obtaining all necessary permits and other
approvals of authorities required for such repair or rebuilding.
DAMAGE TO LEASED PREMISES - TERMINATION
46.02 If the Leased Premises are damaged or destroyed by any cause whatsoever or
reasonable access thereto shall be impossible, and if, in the opinion of the
Landlord reasonably arrived at, the Leased Premises cannot be rebuilt or made
fit for the purposes of the Tenant or reasonable access provided (on a temporary
or permanent basis) within ninety (90) days of the damage or destruction, the
Landlord, instead of rebuilding or making the Leased Premises fit for the
Tenant, or providing reasonable access may at its option terminate this Lease by
giving to the Tenant, within thirty (30) days after such damage or destruction,
notice of termination, and thereupon Rent and any other payments for which the
Tenant is liable under this lease shall be apportioned and paid to the date of
such damage and the Tenant shall immediately deliver up possession of the Leased
Premises to the Landlord.
DAMAGE TO BUILDING - TERMINATION
46.03 Irrespective of whether the Leased Premises are damaged or destroyed or
reasonable access made impossible, in the event that fifty percent (50%) or more
of the rentable area of the Building or twenty percent (20%) of the rentable
area of the whole of Harbour Centre is damaged or destroyed by any cause
whatsoever, and if, in the opinion of the Landlord reasonably arrived at, the
said rentable area or areas cannot be rebuilt or made fit for the purposes of
the tenants of such space within one hundred and eighty (180) days of the damage
or destruction, the Landlord may at its option terminate this Lease by giving to
the Tenant, within thirty (30) days after such damage or destruction, notice of
termination requiring vacant possession of the Leased Premises sixty (60) days
after delivery of the notice of termination and thereupon Rent and any other
payments for which the Tenant is liable under this Lease shall be apportioned
and paid to the date on which vacant possession is required and the Tenant shall
deliver up possession of the Leased Premises to the Landlord in accordance with
such notice of termination.
LOSS AND DAMAGE
47.01 The Landlord shall not be liable or responsible in any way:
(a) for any death or injury arising from or out of any occurrence in, upon
or at the Building or for damage to property of the Tenant or others
located on the Leased Premises, nor shall it be responsible in the event
of damage to any property of the Tenant or others from any cause
whatsoever, whether or not such damage, loss, injury or death results
from the negligence of the Landlord, its agents, servants or employees
or others for whom it may be responsible. Without limiting the
generality of the foregoing, the Landlord shall not be liable for any
injury or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water, rain, snow or leaks
from any part of the Leased Premises or from the pipes, appliances, or
plumbing works, roof, street, or subsurface of any floor or ceiling or
from any other place or because of dampness or climatic conditions or
from any other cause of whatsoever nature. The Landlord shall not be
liable for any damage whatsoever caused by any other tenant or persons
in the Building, or by an occupant of adjacent property thereto, or the
public, or construction of any private, public or quasi-public work. All
property of the Tenant kept or stored on the Leased Premises shall be so
kept or stored at the risk of the Tenant only and the Tenant shall
indemnify the Landlord in the event of any claims arising out of damages
to the same, including any subrogation claim by the Tenant's insurers;
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(b) for any act or omission (including theft, malfeasance or negligence) on
the part of any agent, contractor or person from time to time employed
by it to perform janitor services or security services, in or about the
Leased Premises or the Building; or
(c) for loss or damage however caused, to money, securities, negotiable
instruments, papers or other valuables of or held by the Tenant.
DELAYS
48.01 Whenever and to the extent that the Landlord shall be unable to fulfil, or
shall be delayed or restricted in the fulfilment of any obligation hereunder in
respect of the supply or provision of any service or utility or the doing of any
work or the making of any repairs by reason of being unable to obtain the
material, goods, equipment, service, utility or labour required to enable it to
fulfil such obligation or by reason of any statute, law or Order-in-Council or
any regulation or order passed or made pursuant thereto or by reason of the
order or direction of any administrator, controller or board, or any
governmental department or officer or other authority, or by reason of not being
able to obtain any permission or authority required thereby, or by reason of any
other cause beyond its control whether of the foregoing character or not, the
Landlord shall be entitled to extend the time for fulfilment of such obligation
by a time equal to the duration of such delay or restriction, and the Tenant
shall not be entitled to compensation for any inconvenience, nuisance or
discomfort thereby occasioned, and shall not be entitled to cancel this Lease.
DEFAULT
49.01 If and whenever:
(a) the Rent hereby reserved, or any part thereof, is not paid when due,
whether lawfully demanded or not, or there is non-payment of any other
amounts which the Tenant is obligated to pay under any provisions
hereof, and such default shall continue after seven (7) days notice by
the Landlord requiring the Tenant to rectify the same; or
(b) the Term hereby granted, or any goods, chattels or equipment of the
Tenant, shall be taken or exigible in execution or in attachment or if a
writ of execution shall issue against the Tenant; or
(c) the Tenant or the Co-Covenantor, if any, shall become insolvent or
commit an act of bankruptcy or become bankrupt or take the benefit of
any Act that may be in force for bankrupt or insolvent debtors or become
involved in voluntary or involuntary winding-up proceedings or if a
receiver shall be appointed for the business, property, affairs or
revenues of the Tenant or the Co-Covenantor, if any; or
(d) the Tenant shall make a bulk sale of its goods or move or commence,
attempt or threaten to move its goods, chattels and equipment out of the
Leased Premises (other than in the routine course of its business) or
shall cease to conduct business from the Leased Premises; or
(e) the Tenant shall not observe, perform and keep each and every of the
covenants, agreements, provisions, stipulations and conditions herein
contained to be observed, performed and kept by the Tenant and shall
persist in such failure after fifteen (15) days notice by the Landlord
requiring that the Tenant remedy, correct, desist or comply or in the
case of any such breach which reasonably would require more than fifteen
(15) days to rectify unless the Tenant shall commence rectification
within the fifteen day notice period and thereafter promptly and
diligently and continuously proceed with the rectification of the
breach; or
(f) the Demised Premises shall be vacated or remain unoccupied for ten
(10) days;
then and in every case the then current and the next ensuing three (3) months
rent, and the additional rental for the current year (to be reckoned at rates
estimated by the Landlord acting reasonably) shall immediately become due and
payable and the Landlord may re-enter and take possession of the Leased
Premises, or any part thereof in the name of the whole, and have again,
repossess and enjoy the Leased Premises in its former estate, anything herein to
the contrary notwithstanding, as though the Tenant were holding over after the
expiration of the Term, and the Term shall, at the option of the Landlord,
forthwith become forfeited and determined and accelerated Rent shall be
recoverable by the Landlord as if it were rent in
20
<PAGE>
arrears, but the Tenant shall remain liable under this Lease. If more than one
person shall constitute the Co-Covenantor, the word "Co-Covenantor", where used
in this Section 49.01, shall be construed as referring separately to each and
every person constituting the Co-Covenantor.
COSTS
50.01 The Tenant shall pay as additional rent and indemnify the Landlord against
all costs and charges lawfully and reasonably incurred, including legal expenses
actually incurred in enforcing payment of Rent and all other charges payable by
the Tenant hereunder and in obtaining possession of the Leased Premises after
default of the Tenant or upon expiration or earlier termination of this Lease,
or in enforcing any covenant, proviso or agreement of the Tenant herein
contained.
DISTRESS
51.01 The Tenant waives and renounces the benefit of any present or future
statute taking away or limiting the Landlord's right of distress, and covenants
and agrees that notwithstanding any such statute none of the goods and chattels
of the Tenant on the Leased Premises at any time during the Term shall be exempt
from levy by distress for rent in arrears.
RIGHT OF ENTRY
52.01 The Tenant further covenants and agrees that on the Landlord's becoming
entitled to re-enter upon the Leased Premises under any of the provisions of
this Lease the Landlord, in addition to all other rights, shall have the right
to enter the Leased Premises as the agent of the Tenant either by force or
otherwise, without being liable for any prosecution therefor and to relet the
Leased Premises as the agent of the Tenant, and to receive the Rent therefor,
and as agent of the Tenant to take possession of any furniture or other property
on the Leased Premises and to sell the same together with any trade fixtures on
which the Landlord has a lien pursuant to Section 42.02 at public or private
sale and either in bulk or by individual item without notice and to apply the
proceeds of such sale and any Rent derived from reletting the Leased Premises,
after deducting its costs of conducting such sale and its costs of reletting, on
account of the Rent under this Lease, and the Tenant shall be liable to the
Landlord for the deficiency, if any.
RIGHT OF TERMINATION
53.01 The Tenant further covenants and agrees that on the Landlord's becoming
entitled to re-enter upon the Leased Premises under any of the provisions of
this Lease, the Landlord in addition to all other rights, shall have the right
to determine this Lease and the Term forthwith by giving notice in writing to
the Tenant and thereupon Rent shall be computed, apportioned and paid in full to
the date of such determination of this Lease, and any other payments for which
the Tenant is liable under this Lease shall be paid and the Tenant shall
forthwith deliver up possession of the Leased Premises to the Landlord and the
Landlord may re-enter and take possession of the same.
PAYMENT OF RENT AND PERFORMANCE OF COVENANTS
54.01 The Tenant shall pay to the Landlord in the manner specified herein,
without any deduction, set-off or abatement, all Rent hereby reserved and all
amounts which are collectible by the Landlord as rent, and in the event the
Tenant shall fail to pay any such amount when due and payable hereunder such
amount shall bear interest payable by the Tenant as additional rent at the rate
of twenty-four-percent (24%) per annum from the date upon which the same was due
until actual payment thereof. The Tenant shall observe and perform all terms and
provisions of this Lease on its part to be observed and performed and shall not
do or suffer to be done anything contrary to any term or provision hereof.
ADDITIONAL RIGHTS AND REMEDIES OF LANDLORD ON DEFAULT
55.01 In addition to all rights and remedies of the Landlord available to it in
the event of any default hereunder by the Tenant either by any other provision
of this Lease or by statute or the general law the Landlord:
(a) shall have the right at all times to remedy or attempt to remedy
any default of the Tenant and in so doing may make any payments
due or alleged to be due by the Tenant to third parties and may
enter upon the Leased Premises to do any work or other things
therein, and in such event all costs and expenses of the
Landlord in remedying or attempting to remedy such default shall
be payable by the Tenant to the Landlord forthwith upon demand;
and
(b) shall have the same rights and remedies in the event of any
non-payment by the Tenant of any amounts payable by the Tenant
under any provision of this Lease as in the case of a non-payment
of Rent.
21
<PAGE>
NON-WAIVER
56.01 No condoning, excusing or overlooking by the Landlord or any default,
breach or non-observance by the Tenant at any time or times in respect of any
covenants, provisos or conditions herein contained shall operate as a waiver of
the Landlord's rights hereunder in respect of any continuing or subsequent
default, breach or non-observance or so as to defeat or affect in any way the
rights of the Landlord in respect of any such continuing or subsequent default
or breach, and no waiver shall be inferred from or implied by anything done or
omitted by the Landlord save only by express waiver in writing. All rights and
remedies of the Landlord contained in this Lease shall be cumulative and not
alternative.
OVERHOLDING BY TENANT
57.01 If the Tenant continues to occupy the Leased Premises after the expiration
of this Lease with or without the consent of the Landlord, and without any
further written agreement, the Tenant shall be a monthly tenant at double the
rent herein reserved pro rated in relation to the periods of time during which
the Tenant is an overholding tenant, and on the terms and conditions herein set
out except as to length of tenancy.
DIRECTORY BOARD
58.01 The Tenant shall be entitled to have one name inserted in the Directory
Board of the Building, and the Landlord shall design the style of such
identification, and the Directory Board shall be located in an area designated
by the Landlord in the main lobby.
ACCRUAL OF RENT
59.01 Rent shall be considered as annual and accruing from day to day, and where
it becomes necessary for any reason to calculate such Rent for an irregular
period of less than one year an appropriate apportionment and adjustment shall
be made. Where the calculation of any additional rental is not made until after
the termination of this Lease, the obligation of the Tenant to pay such
additional rental shall survive the termination of this Lease and such amounts
shall be payable by the Tenant upon demand by the Landlord.
SALE BY LANDLORD
60.01 In the event of a sale, transfer or lease by the Landlord of the Building
or a portion thereof containing the Leased Premises or the assignment by the
Landlord of this Lease or any interest of the Landlord hereunder, the Landlord
shall, without further written agreement, to the extent that such purchaser,
transferee or lessee has become bound by the covenants and obligations of the
Landlord hereunder, be freed, released and relieved of all liability or
obligations under this Lease.
NOTICE
61.01 Any notice, request, statement or other writing pursuant to this Lease
shall be deemed to have been given if sent by registered prepaid post as
follows:
To the Landlord:
Harbour Centre Complex Limited
P.O. Box 12050 - 555 West Hastings Street
Vancouver, British Columbia
V6B 4N4
or such other address as the Landlord shall notify the Tenant in writing at
any time or from time to time;
22
<PAGE>
To The Tenant:
at the Leased Premises, if delivered, or if
sent by registered prepaid post at the address
set out in Section 8 of Schedule 2;
and such notice shall be deemed to have been received by the Landlord or the
Tenant, as the case may be, on the second business day after the date on which
it shall have been so mailed except in the event of labour disputes or other
disruptions affecting postal service occurring prior to the deemed date of
receipt thereof in which case notice will not be deemed to have been received
until actually received.
NOTICE BY DELIVERY
61.02 Notice shall also be sufficiently given if and when the same shall be
delivered, in the case of notice to Landlord, to an executive officer of the
Landlord, and in the case of notice to the Tenant, to him personally or to an
executive officer of the Tenant if the Tenant is a corporation. Such notice, if
delivered, shall be conclusively deemed to have been given and received at the
time of such delivery. If in this Lease two or more persons are named as Tenant,
or are obligated to fulfil the obligations of the Tenant hereunder, such notice
shall also be sufficiently given if and when the same shall be delivered
personally to any one of such persons. Provided that either party may, by notice
to the other, from time to time designate another address in Canada to which
notices mailed more than ten (10) days thereafter shall be addressed.
LAWS OF PROVINCE APPLY
62.01 This Lease shall be deemed to have been made in and shall be construed in
accordance with the laws of the Province of British Columbia. All matters and
disputes, whether sounding in contract or in tort relating to the validity,
construction, interpretation, breach or enforcement of this Lease shall be
determined before the courts of the Province of British Columbia and the Tenant
thereby attorns to the jurisdiction of the courts of the Province of British
Columbia in all such matters and disputes.
PAYMENT IN CANADIAN FUNDS
63.01 The rentals reserved hereunder and all other amounts required to be paid
or payable under the provisions of this Lease shall be paid in lawful money of
Canada at par at Vancouver, British Columbia.
LEASE ENTIRE AGREEMENT
64.01 The Tenant acknowledges that there are no covenants, representations,
warranties, agreements or conditions expressed or implied, collateral or
otherwise forming part of or in any way affecting or relating to this Lease or
the Leased Premises save as expressly set out in this Lease and that this Lease,
including the Schedules attached and the Rules and Regulations, constitutes the
entire agreement between the Landlord and the Tenant and may not be modified
except as herein explicitly provided or except by subsequent agreement in
writing of equal formality hereto executed by the Landlord and the Tenant.
Notwithstanding the foregoing the Tenant shall remain liable to pay for those
improvements in the Leased Premises which have been made by the Landlord for or
on behalf of the Tenant and which are in excess of the work otherwise required
to be done by the Landlord and the Landlord's fee for supervision and overhead,
as to all of which reference may be made to the Offer to Lease made by the
Tenant and accepted by the Landlord to which the form of this Lease was a
Schedule.
BINDING EFFECT
65.01 Subject to the provisions of this Lease respecting assignment by the
Tenant, this Lease shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.
TIME OF THE ESSENCE
66.01 Time shall be of the essence in all respects hereunder.
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<PAGE>
REGISTRATION
67.01 The Tenant covenants and agrees that the Landlord shall not be obliged to
execute or deliver this Lease in form registrable under the Land Title Act or
any other statute in pari materia therewith that the Tenant will not register or
record this Lease against the title to the Lands.
TERMINATION UPON REGISTRATION
68.01 If the Tenant or any person claiming through or under him, whether by
descent, purchase or otherwise, shall apply to have this Lease registered
against the title to the Leased Premises or the Lands or shall apply to file or
register any notice of or caveat with respect to this Lease or the interest of
the Tenant arising hereunder against such title or shall institute any
proceedings to effect any such registration, the Landlord may at any time
thereafter terminate this Lease and the Term upon giving written notice of such
termination to the Tenant.
OPTION TO RENEW
69.01 The Landlord grants to the Tenant an option to renew this Lease on the
terms and conditions set out in Schedule 4 hereto.
IN WITNESS WHEREOF the parties hereto have executed this Lease under seal
as of the day and year first above written.
THE CORPORATE SEAL of HARBOUR CENTRE )
COMPLEX LIMITED was hereunto affixed in the )
presence of: )
)
/s/ Not Legible )
- -------------------------------------------------)
Authorized Signatory: )
)
/s/ Jon Hall ) c/s
- -------------------------------------------------)
Authorized Signatory: Jon Hall, General Manager )
THE COMMON OR CORPORATE SEAL OF )
E-XACT TRANSACTIONS LTD. )
- -------------------------------------------------)
was hereunto affixed in the presence of: )
)
/s/ Peter Fahlman )
- -------------------------------------------------)
Authorized Signatory )
)
Peter Fahlman, President )
- -------------------------------------------------)
(Print Name and Title) )
) c/s
)
- -------------------------------------------------)
Authorized Signatory )
)
- -------------------------------------------------)
(Print Name and Title) )
(OR, IN THE ABSENCE OF A COMMON OR CORPORATE SEAL)
IN WITNESS WHEREOF the Tenant has executed this Lease by it's duly authorized
officers.
E-XACT TRANSACTIONS LTD.
Per:
/s/ Peter Fahlman
- -------------------------------------------------
Authorized Signatory
Name: Peter Fahlman
--------------------------------------------
Title: President
-------------------------------------------
Per:
/s/ Robert Roker
- -------------------------------------------------
Authorized Signatory
Name: Robert Roker
--------------------------------------------
Title: Secretary
-------------------------------------------
24
<PAGE>
SCHEDULE 1
PLAN OF LEASED PREMISES
The purpose of this plan is to identify the approximate location of the Leased
Premises in the Building. The Landlord reserves the right at any time to
relocate, rearrange or alter the buildings and structures, other premises,
Common Areas and Facilities and the Leased Premises from that shown on this
floor plan.
<PAGE>
SCHEDULE 2
To Lease dated April 22 , 1999 made between Harbour Centre Complex Limited, as
Landlord and E-xact Transactions Ltd., as Tenant.
SUMMARY OF TERMS
1. The Commencement Date shall be NOVEMBER 15, 1998.
2. The Tenant's Floor Area determined in accordance with Section 1.05 of the
Lease is approximately 1,320 square feet (122.63 square metres).
3. The Term of the Lease is TWO (2) years and TEN (10) months and -0- days,
from and including the Commencement Date and ending on the 14TH day of
SEPTEMBER, 2001. .
4. The amount of annual rent payable shall be:
Year 1 - NOVEMBER 15, 1998 TO SEPTEMBER 14, 2001
$21,120.00PER ANNUM ($16.00 PER SQUARE FOOT)
5. The amount of monthly rent payable shall be:
Year 1 - NOVEMBER 15, 1998 TO SEPTEMBER 14, 2001
$1,760.00 PER MONTH
6. The amount of estimated additional rent payable by the Tenant at the
Commencement Date is SIXTEEN THOUSAND SIX HUNDRED FIFTY EIGHT DOLLARS AND
FORTY CENTS ($16,658.40) ($16,658.40) per annum payable monthly in
advance.
7. The Leased Premises shall be used solely for:
A GENERAL BUSINESS OFFICE ONLY.
8. The Tenant's address for notice is:
E-XACT TRANSACTIONS
P.O. BOX 12088
555 WEST HASTINGS ST.
V6B 4N5
9. The Tenant has paid a deposit of SIX THOUSAND TWO HUNDRED NINETY SIX
DOLLARS AND FORTY CENTS ($6,296.40) to be credited to the Rent for the
last two (2) months of the Term.
<PAGE>
SCHEDULE 3
RULES AND REGULATIONS
1. The Tenant shall not place or permit to be placed or left in or upon any
part of the Building outside the Leased Premises, or in or upon part of
the Building of which the Leased premises form a part, any debris or
refuse. The cost of removal or cleaning of debris and refuse shall be
charged to the Tenant.
2. The Landlord shall permit the Tenant and the Tenant's employees and all
persons lawfully requiring communication with them to have the use during
Normal Business Hours in common with others entitled thereto of the main
entrance and the stairways, corridors, elevators or other mechanical means
of access leading to the Leased Premises. At times other than during
Normal Business Hours the Tenant and the employees of the Tenant and
persons lawfully requiring communication with the Tenant shall have access
to the Building and to the Leased Premises only in accordance with the
Rules and Regulations.
3. The Landlord shall permit the Tenant and the employees of the Tenant in
common with others entitled thereto, to use the washrooms on the floor of
the Building on which the Leased Premises are situated or, in lieu
thereof, those washrooms designated by the Landlord, save and except when
the general water supply may be turned off from the public main or at such
other times when repair and maintenance undertaken by the Landlord shall
necessitate the non-use of the facilities.
4. The Tenant shall not permit any cooking in the Leased Premises without the
written consent of the Landlord.
5. The sidewalks, entries, passages, escalators, elevators and staircases
shall not be obstructed or used by the Tenant, its agents, servants,
contractors, invitees or employees for any purpose other than ingress to
and egress from the offices. The Landlord reserves entire control of all
parts of the Building employed for the common benefit of the tenants and
without restricting the generality of the foregoing, the sidewalks,
entries, corridors and passages not within the Leased Premises, washrooms,
lavatories, air-conditioning closets, fan rooms, janitor's closets,
electrical closets and other closets, stairs, escalators, elevator shafts,
flues, stacks, pipe shafts and ducts and shall have the right to place
such signs and appliances therein as it may deem advisable, provided that
ingress to and egress from the Leased Premises is not unduly impaired
thereby.
6. The Tenant, its agents, servants, contractors, invitees or employees,
shall not bring in or take out, position, construct, install or move
any safe, business machinery or other heavy equipment or anything
liable to injure or destroy any part of the Building without first
obtaining the consent in writing of the Landlord. In giving such
consent, the Landlord shall have the right in its sole discretion to
prescribe the weight permit-platforms to distribute the weight
thereof. All damage done to the Building by moving or using any such
heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Tenant. The moving of all heavy
equipment or other office equipment or furniture shall occur only by
prior arrangement with the Landlord. No Tenant shall employ anyone to
do its moving in the Building other than the staff of the Building
unless permission to employ someone else is given by the Landlord and
the reasonable cost of such moving shall be paid by the Tenant. Safes
and other heavy office equipment and machinery shall be moved through
the halls and corridors only upon steel bearing plates. No freight or
bulky matter of any description will be received into the Building or
carried in the elevators except during hours approved by the Landlord
and in the elevator designated by the Landlord for such use.
7. The Tenant shall not place or cause to be placed any additional locks upon
any of the Leased Premises without the approval of the Landlord and
subject to any conditions imposed by the Landlord. Two keys shall be
supplied by the Landlord for each entrance door to the Leased Premises
and all locks shall be standard to permit access to the Landlord's
master key. If additional keys are requested, they must be paid for by
the Tenant. No one, other than the Landlord's staff, will have keys to
the outside entrance doors of the Building.
<PAGE>
8. The water closets and other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the Tenant
by whom or by whose agents, servants, or employees the same is caused.
The Tenant shall not let water run unless it is in actual use, and
shall not deface or mark any part of the Building, or drive nails,
spikes, hooks, or screws into the walls or woodwork of the Building.
9. The Tenant shall not do or permit anything to be done in the Leased
Premises, or bring or keep anything therein which will in any way
increase the risk of fire or the rate of fire insurance on the
Building or Harbour Centre or on property kept therein, or obstruct or
interfere with the rights of other tenants or in any way injure or
annoy them or the Landlord, or violate or act at variance with the
laws relating to fires or with the regulations of the Fire Department,
or with the conditions of any insurance upon said Building or any part
thereof, or violate or act in conflict with any of the rules and
ordinances of the Board of Health or with any statute or municipal
by-law.
10. No one shall use the Leased Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or articles
other than those required for business purposes.
11. The Tenant shall permit window cleaners to clean the windows of the Leased
Premises during Normal Business Hours.
12. Canvassing, soliciting and peddling in or about the Building and in the
parking area are prohibited.
13. The Tenant shall not receive or ship articles of any kind except through
facilities, and designated doors and at hours designated by the
Landlord under the supervision of the Landlord.
14. It shall be the duty of the respective tenants to assist and cooperate
with the Landlord in preventing injury to the premises demised to them
respectively.
15. No inflammable oils or other inflammable, dangerous or explosive materials
save those approved in writing by the Landlord's insurers shall be kept or
permitted to be kept in the Leased Premises.
16. No bicycles or other vehicles shall be brought within the Building without
the consent of the Landlord.
17. No animals or birds shall be brought into the Building without the consent
of the Landlord.
18. The Tenant shall not install or permit the installation or use of any
machine dispensing goods for sale in the Leased Premises or the
Building or permit the delivery of any food or beverages to the Leased
Premises without the approval of the Landlord or in contravention of
any regulations fixed or to be fixed by the Landlord. Only persons
authorized by the Landlord shall be permitted to deliver or to use the
elevators in the Building for the purpose of delivering food or
beverages to the Leased Premises.
19. If the Tenant desires telegraphic or telephonic connections, the Landlord
will direct the electricians as to where and how the wires are to be
introduced, and without such directions no boring or cutting for wires
will be permitted. No gas pipe or electric wire will be permitted which
has not been ordered or authorized by the Landlord. No outside radio or
television aerials shall be allowed on the Leased Premises without
authorization in writing by the Landlord.
20. The Tenant shall not cover or obstruct any of the skylights and windows
that reflect or admit light into any part of the Building except for the
proper use of approved blinds and drapes.
21. Any hand trucks, carry-alls, or similar appliances used in the Building
with the consent of the Landlord shall be equipped with rubber tires,
slide guards and such other safeguards as the Landlord shall require.
<PAGE>
22. The Tenant shall not permit undue accumulations of garbage, trash, rubbish
or other refuse within or without the Leased Premises or cause or permit
noise, vibrations or objectionable odours to emanate or be dispelled from
the Leased Premises.
23. The Tenant shall not place or maintain any supplies or other articles in
any vestibule or entry of the Leased Premises, on the hallways adjacent
thereto or elsewhere on the exterior of the Leased Premises or the
Building.
24. The Tenant agrees to the foregoing Rules and Regulations, which are hereby
made a part of this Lease, and each of them, and agrees that for such
persistent infraction of them, or any of them, as may in the opinion
of the Landlord be calculated to annoy or disturb the quiet enjoyment
of any other tenant, or for gross misconduct upon the part of the
Tenant, or any one under it, the Landlord may declare a forfeiture and
cancellation of the Lease and may demand possession of the Leased
Premises upon one (1) week's notice.
25. In order to ensure efficient operation of the air-conditioning system, no
window shades, curtains, blinds, or screens other than those prescribed by
the Landlord or agreed to in writing by the Landlord shall be attached to,
hung up or used in connection with any window or door in the Leased
Premises, no article shall be placed on or permitted to block any
convector and the Landlord may require the Tenant to keep exterior window
coverings drawn.
26. All persons entering and leaving the Building at any time, except during
Normal Business Hours, shall register in the book kept by the Landlord and
the Landlord shall have the right to prevent any person from entering or
leaving the Building unless provided with a pass in a form to be approved
by the Landlord. Any person found in the Building at such time without
such pass shall be subject to the surveillance of the employees and agents
of the Landlord.
27. The Landlord shall, at its sole discretion, from time to time, determine
the location, design and use of a directory board upon which the Tenant
shall be entitled to have its name shown.
<PAGE>
SCHEDULE "4"
OPTION TO RENEW
1. Provided that the Tenant shall not be in default under any of the covenants
or conditions of this Lease, the Landlord hereby grants to the Tenant a
right of renewal, exercisable by the Tenant giving written notice to the
Landlord not less than six (6) months and not more than nine (9) months
prior to the expiration of the Term, to renew the Term of this Lease for a
further period of FIVE ( 5 ) years (in this Lease called the "Renewal
Term").
2. There shall be no further right of renewal beyond the Renewal Term.
3. The renewal lease shall contain the same covenants, conditions and
agreements as are contained in this Lease, except:
(a) the right of renewal already exercised shall be omitted;
(b) any section or clause of this Lease which requires revision to
state correctly the manner in which it is to be applied during the
Renewal Term shall be so revised; and
(c) Rent for the Renewal Term shall be determined as provided in
paragraph 4 hereof.
4. The Rent payable with respect to the Renewal Term shall be the greater of:
(a) the Rent payable during the final year of this Lease: or
(b) the Fair Market Rent (as defined in Article 1.01, Section (s)) for
the Leased Premises as at the commencement date of the Renewal
Term.
5. The parties shall make bona fide efforts to agree as to the Fair Market Rent
with respect to the Leased Premises as at the commencement date of the
Renewal Term. If, however, the parties have not agreed as to the amount of
rent by the sixtieth (60th) day prior to the commencement of the Renewal
Term, then such rent shall be determined either:
(a) by an arbitrator mutually agreed upon by the parties who shall be
a person currently active in the Province of British Columbia as
an Accredited Real Estate appraiser having not less than five
years experience as an appraiser; or
(b) if the parties are unable to agree as to an arbitrator pursuant to
clause (a) of this paragraph, then such Fair Market Rent shall be
determined by a single arbitrator in accordance with the
provisions of the Commercial Arbitration Act S.B.C. 1986, c. 3 and
amendments thereto or legislation in substitution therefore.
<PAGE>
SCHEDULE "5"
LEASEHOLD IMPROVEMENTS
The Tenant shall be responsible for providing their own Leasehold Improvements
including designer fees, architectural inspection fees, demolition and
construction costs and signage, all in keeping with the Landlord's Tenant
Guidelines and to the prior approval of the Landlord.
SCHEDULE "6"
TENANT IMPROVEMENTS
Tenant Improvements will be carried out in accordance with the Estimated
Construction Budget dated October 28, 1998, attached to the Offer to Lease, in
the amount of $13,426.88, plus GST with the costs to be split 50/50 between the
Landlord and Tenant. The Tenant's portion of these improvements will be
amortized over the initial term of the Lease.
Any costs over and above the Estimated Construction Budget dated October 28,
1998 shall be split 50/50 between the Landlord and the Tenant.
SCHEDULE "7"
LANDLORD'S WORK
The Landlord shall at it's cost, erect a wall to demise the Leased Premises and
create an entry door.
SCHEDULE "8"
ADDITIONAL ELECTRICAL CHARGES
The Landlord can make available Emergency Power to the Leased Premises at a one
time charge of $300.00 per amp. the Landlord shall not be responsible for any
indirect or consequential damage resulting from any failure of the building's
emergency generator however caused but shall at all times maintain it in good
operating condition.
<PAGE>
HARBOUR CENTRE
OFFICE LEASE
TABLE OF CONTENTS
PAGE
ARTICLE 1.01: DEFINITIONS - GENERAL.....................................1
ARTICLE 1.02: DEFINITIONS - LANDLORD AND TENANT.........................4
ARTICLE 1.03: CONSTRUCTION OF LEASE TERMS...............................4
ARTICLE 1.04: CAPTIONS..................................................4
ARTICLE 1.05: CALCULATION OF "TENANT'S FLOOR AREA" AND "NET
RENTABLE AREA" OF THE BUILDING............................4
ARTICLE 1.06: NET LEASE.................................................5
ARTICLE 2.01: LEASED PREMISES...........................................5
ARTICLE 3.01: TERM OF LEASE.............................................5
ARTICLE 4.01: RENT......................................................5
ARTICLE 4.02: ADJUSTMENT OF RENT WHEN AREAS ARE MEASURED AND
CHANGED...................................................5
ARTICLE 5.01: COMMENCEMENT AND CONDUCT OF BUSINESS......................6
ARTICLE 6.01: BUSINESS AND OTHER TAXES..................................6
ARTICLE 7.01: TAX ON TENANT'S LEASEHOLD IMPROVEMENTS,
MACHINERY TAX.............................................6
ARTICLE 8.01: TAX ON LEASED PREMISES....................................6
ARTICLE 9.01: TAX ON LANDS NOT SEPARATELY ASSESSED......................7
ARTICLE 10.01: PER DIEM ADJUSTMENT OF TAXES..............................7
ARTICLE 11.01: OPERATING COSTS...........................................7
ARTICLE 12.01: PAYMENT OF ESTIMATED ADDITIONAL RENTALS...................7
ARTICLE 13.01: ADDITIONAL ELECTRICITY CHARGES...........................8
ARTICLE 14.01: REPLACEMENT OF BULBS, TUBES, BALLASTS AND LIGHT
FIXTURE PARTS.............................................8
ARTICLE 14.02: COST OF METERS............................................8
ARTICLE 14.03: TENANT'S USE OF ELECTRICITY...............................8
ARTICLE 15.01: COST OF REPAIRS PAYABLE BY TENANT.........................8
ARTICLE 15.02: REPAIR OF LEASED PREMISES BY TENANT.......................9
ARTICLE 15.03: PEACEABLE SURRENDER.......................................9
ARTICLE 15.04: TIDY CONDITION OF LEASED PREMISES.........................9
ARTICLE 16.01: OCCUPATION OF LEASED PREMISES.............................9
ARTICLE 16.02: ASSIGNMENT, SUBLETTING, PARTING WITH POSSESSION...........9
ARTICLE 16.03: LANDLORD'S RIGHTS.........................................9
ARTICLE 16.04: TRANSFER OF SHARES OF TENANT..............................10
ARTICLE 16.05: TENANT'S RECORDS OF SHAREHOLDINGS.........................10
ARTICLE 17.01: RULES AND REGULATIONS.....................................10
ARTICLE 17.02: CHANGES TO RULES AND REGULATIONS..........................10
ARTICLE 18.01: USE OF LEASED PREMISES....................................11
ARTICLE 18.02: INCREASE IN INSURANCE PREMIUMS............................11
ARTICLE 19.01: TENANT'S INSURANCE........................................11
ARTICLE 20.01: CANCELLATION OF INSURANCE.................................12
ARTICLE 21.01: OBSERVANCE OF LAW.........................................12
ARTICLE 22.01: WASTE AND NUISANCE........................................13
<PAGE>
ARTICLE 23.01: ENTRY BY LANDLORD.........................................13
ARTICLE 24.01: INDEMNIFICATION OF LANDLORD...............................13
ARTICLE 25.01: EXHIBITING PREMISES.......................................13
ARTICLE 26.01: ALTERATIONS BY TENANT.....................................13
ARTICLE 26.02: ALTERATION OF BUILDING....................................14
ARTICLE 26.03: ALTERATION OF PIPES, CONDUITS, ETC........................14
ARTICLE 26.04: ALTERATION OF LEASED PREMISES.............................14
ARTICLE 27.01: REPLACEMENT OF GLASS......................................14
ARTICLE 28.01: SIGNS AND ADVERTISING.....................................14
ARTICLE 29.01: NAME OF BUILDING..........................................15
ARTICLE 30.01: SUBORDINATION AND ATTORNMENT..............................15
ARTICLE 31.01: ACCEPTANCE OF PREMISES....................................15
ARTICLE 32.01: CERTIFICATES..............................................15
ARTICLE 33.01: QUIET ENJOYMENT...........................................15
ARTICLE 34.01: LANDLORD'S ADDITIONAL COVENANTS...........................15
ARTICLE 35.01: TAXES AND RATES PAYABLE BY LANDLORD.......................15
ARTICLE 36.01: CLIMATE CONTROL BY LANDLORD.............................16
ARTICLE 36.02: ENERGY CONSERVATION BY TENANT.............................16
ARTICLE 37.01: ELEVATOR SERVICE..........................................16
ARTICLE 38.01: ELEVATOR SERVICE INTERRUPTIONS............................16
ARTICLE 39.01: JANITORIAL SERVICES.......................................17
ARTICLE 40.01: WATER AND ELECTRICITY.....................................17
ARTICLE 41.01: REPAIR AND MAINTENANCE....................................17
ARTICLE 42.01: TRADE FIXTURES............................................17
ARTICLE 42.02: REMOVAL OF TRADE FIXTURES.................................18
ARTICLE 43.01: FIXTURES..................................................18
ARTICLE 44.01: TIME FOR REPAIR BY LANDLORD...............................18
ARTICLE 45.01: LANDLORD'S INSURANCE......................................18
ARTICLE 46.01: DAMAGE - ABATEMENT OF RENT................................19
ARTICLE 46.02: DAMAGE TO LEASED PREMISES - TERMINATION...................19
ARTICLE 46.03: DAMAGE TO BUILDING - TERMINATION..........................19
ARTICLE 47.01: LOSS AND DAMAGE...........................................19
ARTICLE 48.01: DELAYS....................................................20
ARTICLE 49.01: DEFAULT...................................................20
ARTICLE 50.01: COSTS.....................................................21
ARTICLE 51.01: DISTRESS..................................................21
ARTICLE 52.01: RIGHT OF ENTRY............................................21
ARTICLE 53.01: RIGHT OF TERMINATION......................................21
ARTICLE 54.01: PAYMENT OF RENT AND PERFORMANCE OF COVENANTS..............21
ARTICLE 55.01: ADDITIONAL RIGHTS AND REMEDIES OF LANDLORD
ON DEFAULT................................................21
<PAGE>
ARTICLE 56.01: NON-WAIVER................................................22
ARTICLE 57.01: OVERHOLDING BY TENANT.....................................22
ARTICLE 58.01: DIRECTORY BOARD...........................................22
ARTICLE 59.01: ACCRUAL OF RENT...........................................22
ARTICLE 60.01: SALE BY LANDLORD..........................................22
ARTICLE 61.01: NOTICE....................................................22
ARTICLE 61.02: NOTICE BY DELIVERY........................................23
ARTICLE 62.01: LAWS OF PROVINCE APPLY....................................23
ARTICLE 63.01: PAYMENT IN CANADIAN FUNDS.................................23
ARTICLE 64.01: LEASE ENTIRE AGREEMENT....................................23
ARTICLE 65.01: BINDING EFFECT............................................23
ARTICLE 66.01 TIME OF THE ESSENCE.......................................23
ARTICLE 67.01: REGISTRATION..............................................24
ARTICLE 68.01: TERMINATION UPON REGISTRATION............................ 24
ARTICLE 69.01: OPTION TO RENEW...........................................24
SCHEDULES & APPENDICES
SCHEDULE 1 - PLAN OF LEASED PREMISES
SCHEDULE 2 - SUMMARY OF TERMS OF LEASE
SCHEDULE 3 - RULES AND REGULATIONS
SCHEDULE 4 - OPTION TO RENEW
APPENDIX A - CO-COVENANTOR'S AGREEMENT
<PAGE>
APPENDIX "A"
THE CO-COVENANTOR'S AGREEMENT
All capitalized words used in this Agreement have the same meaning as in
the Lease between HARBOUR CENTRE COMPLEX LIMITED as Landlord and ______________
____________________________ as Tenant dated ________________________, 19____.
To induce the Landlord to enter into the Lease with the Tenant and in
consideration of the sum of One Dollar ($1.00) now paid by the Landlord to the
undersigned (herein called the "Co-Covenantor") and other good and valuable
consideration (the receipt of all of which is hereby acknowledged by the
Co-Covenantor) the Co-Covenantor agrees under seal with the Landlord as follows:
1. The Co-Covenantor shall be jointly and severally liable with the Tenant as
principal debtor, and not as guarantor or surety, for due payment of all
rent or other monies payable at the time and in the manner provided in the
Lease.
2. The Co-Covenantor unconditionally agrees and covenants with the
Landlord to cause the Tenant to duly keep, observe and perform each and
every of the other agreements, conditions, covenants, obligations,
stipulations, and other provisions of the Lease to be observed,
performed and kept by the Tenant at the time and in the manner provided
in the Lease and in the event of default by the Tenant to duly observe,
perform and keep such agreements, conditions, covenants, obligations,
stipulations and other provisions himself.
3. The Co-Covenantor will indemnify and save harmless the Landlord against
and from all costs, damages, expense and losses which the Landlord may
sustain, incur or become liable for by reason of:
(a) the failure, for any reason whatsoever, of the Tenant or the
Co-Covenantor to pay all rent or other monies payable at the times
and in the manner provided in the Lease;
(b) the failure, for any reason whatsoever, of the Tenant or the
Co-Covenantor on behalf of the Tenant, to observe, perform and keep
each and every of the other agreements, conditions, covenants,
obligations, stipulations, and other provisions of the Lease to be
kept, observed and performed by the Tenant; or
(c) any act, action or proceeding of or by the Landlord for or in
connections with the enforcement of the Lease including without
limitation the provisions of this Agreement.
4. With respect to the Co-Covenantor's joint and severable liability with the
Tenant as principal debtor in accordance with paragraph 1 of this
Agreement, such obligations shall survive any act, omission or proceeding
which might release or diminish the liability of any guarantor or surety
of the due payment of any rent or other monies payable pursuant to the
Lease.
5. With respect to the Co-Covenantor's obligations pursuant to paragraph 2 of
this Agreement:
(a) the Co-Covenantor hereby renounces and waives the benefit of
discussion and compensation and any right to require the Landlord to
first proceed against the Tenant or to pursue any other remedy
whatsoever which may be available to the Landlord before proceeding
against the Co-Covenantor;
(b) The Co-Covenantor acknowledges that any act or failure to act of
or by the Landlord against or in respect of the Tenant or the
Premises pursuant to the terms of the Lease, and without limiting
the generality of the foregoing, any neglect or forbearance or
delay by the Landlord in taking any steps to enforce the
observance, performance and keeping of the covenants, agreements,
stipulations, obligations and other provisions of the Lease, any
extension of time which may be given by the Landlord from time to
time to the Tenant and any release which may be given by the
Landlord from time to time to the Tenant shall not release or
diminish the liability of the Co-Covenantor pursuant to paragraph
2 of this Agreement.
(c) The Co-Covenantor agrees that any alterations of the terms of the
Lease agreed to by the Landlord and the Tenant from time to time,
whether material or not, and whether made pursuant to the Lease or
otherwise, and any assignment of the Lease by the Landlord or the
Tenant or by any trustee, receiver or liquidator of the Tenant shall
not release or diminish the liability of the Co-Covenantor pursuant
to
<PAGE>
paragraph 2 of this Agreement.
6. The Co-Covenantor shall execute and deliver such further assurances as the
Landlord may reasonably require including, should the Landlord so elect
upon re-entry or termination of the Lease or any early termination of the
Term, a lease of the Premises for a term equal in duration to the residue
remaining unexpired of the Term, on the same terms and conditions as the
Lease.
7. In the event of more than one Co-Covenantor to the Lease, the terms
"Co-Covenantor" shall be taken to apply to all such Co-Covenantors, who
shall be jointly and severally liable to the Landlord.
8. The obligations of the Co-Covenantor shall survive any earlier termination
of the Term.
9. The liability of the Co-Covenantor shall continue notwithstanding any
release or discharge of the Tenant in any receivership, bankruptcy,
winding-up or other creditors' proceeding or the rejection, disaffirmance
or disclaimer of the Lease in any proceeding or the repossession of the
Premises by the Landlord.
IN WITNESS WHEREOF the Co-Covenantor has executed this Agreement this
day of , 19 .
THE COMMON OR CORPORATE SEAL OF )
E-XACT TRANSACTIONS LTD )
- ------------------------------------------)
was hereunto affixed in the presence of: )
)
)
- ----------------------------------------- )
Authorized Signatory )
)
- ----------------------------------------- )
(Print Name and Title) )
) c/s
)
- ----------------------------------------- )
Authorized Signatory )
)
- ----------------------------------------- )
(Print Name and Title) )
(OR, IN THE ABSENCE OF A COMMON OR CORPORATE SEAL)
IN WITNESS WHEREOF the Co-Covenantor has executed this Lease by it's duly
authorized officers.
E-XACT TRANSACTIONS LTD.
Per:
___________________________________
Authorized Signatory
Name:______________________________
Title:_____________________________
Per:
___________________________________
Authorized Signatory
Name:______________________________
Title:_____________________________
<PAGE>
SIGNED, SEALED AND DELIVERED by )
)
in the presence of: )
) ___________________________
____________________________________) Signature of Co-Covenantor
Name )
)
____________________________________)
Address )
) ___________________________
____________________________________) Name
)
____________________________________)
Occupation
E-XACT TRANSACTIONS LTD.
STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the E-xact Transactions Ltd. Stock Option Plan (the "Plan")
is to attract and retain directors, officers, other employees and consultants of
E-xact Transactions Ltd. and its Subsidiaries and to provide such persons with
incentives to continue in the long-term service of the Company and to create in
such persons a more direct interest in the future success of the operations of
the Company by relating incentive compensation to increases in stockholder
value.
ARTICLE II
DEFINITIONS
As used in this Plan:
"10% Stockholder" shall mean the owner of stock (as determined under
Section 424(d) of the Code) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Subsidiary.
"Award" shall mean a grant of Stock Options made under the Plan.
"Board" shall mean the Company's Board of Directors.
"Change in Control" shall mean a change in ownership or control of the
Company effected through any of the following transactions:
(i) the acquisition, directly or indirectly by any person or group
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of securities possessing more
than thirty percent (30%) of the total combined voting power of the
Company's outstanding securities;
(ii) a change in the composition of the Board over a period of
eighteen (18) consecutive months or less such that thirty percent (30%) or
more of the Board members have neither (A) been directors continuously
since the beginning of such period nor (B) been unanimously elected or
nominated by the Board for election as directors during such period;
(iii) a stockholder-approved merger or consolidation to which the
Company is a party and in which (A) the Company is not the surviving
entity or (B) securities possessing more than thirty percent (30%) of the
total combined voting power of the Company's
<PAGE>
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction; or
(iv) the sale, transfer or other disposition of all or substantially
all of the Company's assets in complete liquidation or dissolution of the
Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Plan Committee and shall also include the
Employee Committee, if established, when reference is made to functions that may
be performed by the Employee Committee.
"Common Stock" shall mean the Company's common stock, $.001 par value.
"Company" shall mean E-xact Transactions Ltd.
"Date of Grant" shall mean the date specified by the Committee on which a
grant of an Award shall become effective, which shall not be earlier than the
date on which the Committee takes action with respect thereto.
"Employee" shall mean an individual who is in the employ of the Company
or any Subsidiary.
"Employee Committee" shall mean a committee composed of at least one
member of the Board of Directors who may, but need not, be a Non-Employee
Director, which, if established, shall be empowered hereunder to grant Awards to
Employees who are not directors or "officers" of the Company as that term is
defined in Rule 16a-1(f) of the Exchange Act nor "covered employees" under
Section 162(m) of the Code, and to establish the terms of such Awards at the
time of grant, but shall have no other authority with respect to the Plan or
outstanding Awards except as expressly granted by the Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time listed on any stock exchange,
or traded on the Nasdaq National Market, or any other securities trading
market that reports daily the closing selling price per share of Common
Stock, the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question on the stock
exchange or other securities trading market determined by the Committee to
be the primary market for the Common Stock, as such price is officially
quoted on such exchange or trading market.
(ii) If there is no closing selling price for the Common Stock on
the date in question, or if the Common Stock is neither listed on a stock
exchange or traded on a
-2-
<PAGE>
securities trading market that reports daily the closing selling price per
share of the Common Stock, then the Fair Market Value shall be deemed to
be the average of the representative closing bid and asked prices on the
date in question as reported by the Nasdaq Stock Market or other reporting
entity selected by the Committee.
(iii) In the event the Common Stock is not traded publicly, the Fair
Market Value of a share of Common Stock shall be determined, in good
faith, by the Committee after such consultation with outside legal,
accounting and other experts as the Committee may deem advisable, and the
Committee shall maintain a written record of its method of determining
such value.
"Statutory Stock Option" shall mean a Stock Option that (i) qualifies as
an "incentive stock option" under Section 422 of the Code or any successor
provision and (ii) is intended to be treated for purposes of federal income tax
treatment as an option that is so qualified.
"Non-Employee Director" shall mean a director of the Company who meets the
definition of (i) a "non-employee director" set forth in Rule 16b-3 under the
Exchange Act, as amended, or any successor rule and (ii) an "outside director"
set forth in Treasury Regulation 1.162-27, as amended, or any successor rule.
"Non-Statutory Option" shall mean a Stock Option that (i) does not qualify
as an "incentive stock option" under Section 422 of the Code or any successor
provision or (ii) is not intended to be an incentive stock option.
"Optionee" shall mean the person so designated in an agreement evidencing
an outstanding Stock Option.
"Option Price" shall mean the purchase price payable by a Participant upon
the exercise of a Stock Option.
"Participant" shall mean a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time a director, officer or
other Employee of the Company or any Subsidiary, (ii) is at that time a
consultant or other independent advisor who provides services to the Company or
a Subsidiary, or (iii) has agreed to commence serving in any capacity set forth
in (i) or (ii) of this definition.
"Plan" shall mean the Company's Stock Option Plan as set forth herein.
"Plan Committee" shall mean a committee consisting entirely of two or more
Non-Employee Directors, who are empowered hereunder to take all action required
in the administration of the Plan and the grant and administration of Awards
hereunder. The Plan Committee shall be so constituted at all times as to permit
the Plan to comply with Rule 16b-3 or any successor rule promulgated under the
Exchange Act. Members of the Plan Committee shall be appointed from time to time
by the Board, shall serve at the pleasure of the Board and may resign at any
time upon written notice to the Board. Notwithstanding the foregoing, at any
time the Plan Committee is not composed as specified
-3-
<PAGE>
above, or when no Plan Committee has been appointed by the Board, all powers of
the Plan Committee shall be vested in and exercised by in the Board.
"Plan Effective Date" shall mean October 14, 1999, the date on which this
Plan was approved by the Company's Board of Directors.
"SEC" shall mean the U.S. Securities and Exchange Commission and any
successor thereto.
"Stock Option" shall mean a right granted under the Plan to a Participant
to purchase Common Stock at a stated price for a specified period of time.
"Subsidiary" shall mean a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, for purposes of
determining whether any person may be a Participant for purposes of any grant of
Statutory Stock Options, "Subsidiary" means any subsidiary corporation of the
Company as defined in Section 424(f) of the Code.
"Term" shall mean the length of time during which a Stock Option may be
exercised.
ARTICLE III
ADMINISTRATION OF THE PLAN
A. DELEGATION TO THE COMMITTEE. This Plan shall be administered by the
Plan Committee. Members of the Plan Committee and the Employee Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The action of a majority of the members of the Plan
Committee and the Employee Committee present at any meeting, or acts unanimously
approved in writing, shall be the acts of the Plan Committee and the Employee
Committee, respectively.
B. POWERS OF THE COMMITTEE. The Plan Committee shall have full power and
authority, subject to the provisions of this Plan, to establish such rules and
regulations as it may deem appropriate for proper administration of this Plan
and to make such determinations under, and issue interpretations of, the
provisions of this Plan and any outstanding Awards as it may deem necessary or
advisable. In addition, the Plan Committee shall have full power and authority
to administer and interpret the Plan and make modifications as it may deem
appropriate to conform the Plan and all actions pursuant to the Plan to any
regulation or to any change in any law or regulation applicable to this Plan.
C. ACTIONS OF THE COMMITTEE. All actions taken and all interpretations and
determinations made by the Committee in good faith (including determinations of
Fair Market Value) shall be final and binding upon all Participants, the Company
and all other interested persons. No director or member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan, and all directors and members of the
Committee shall,
-4-
<PAGE>
in addition to their rights as directors, be fully protected by the Company with
respect to any such action, determination or interpretation.
D. AWARDS TO OFFICERS AND DIRECTORS.
1. All Awards to officers shall be granted by the Plan Committee. If
the Plan Committee is not composed as prescribed in the definition of Plan
Committee in Article II, the Board may take such action with respect to any
Award to an officer as it deems necessary or advisable to comply with Rule 16b-3
of the Exchange Act and any related rules, including but not limited to seeking
stockholder ratification of such Award or restricting the sale of any shares of
Common Stock underlying the Award for a period of six-months.
2. Discretionary Awards to Non-Employee Directors, if any, shall be
granted by the Board.
ARTICLE IV
ELIGIBILITY AND SELECTION
A. ELIGIBILITY. The persons eligible to participate in the
Discretionary Stock Option Grant Program are as follows:
1. Employees of the Company or a Subsidiary;
2. Members of the Board; and
3. Consultants and other independent advisors who provide services
to the Company or a Subsidiary.
B. SELECTION. The Committee shall from time to time determine the
Participants to whom Awards shall be granted pursuant to the Discretionary Stock
Option Grant Program.
ARTICLE V
SHARES AVAILABLE UNDER THE PLAN
A. MAXIMUM NUMBER. The number of shares of Common Stock issued or
transferred and covered by outstanding Awards granted under this Plan shall not
in the aggregate exceed 1,510,400 shares of Common Stock, which may be Common
Stock of original issuance or Common Stock held in treasury, or a combination
thereof. Shares of Common Stock that may be issued upon the exercise of Stock
Options shall be applied to reduce the maximum number of shares remaining
available for use under the Plan. The Company shall at all times during the term
of the Plan and while any Stock Options are outstanding retain as authorized and
unissued Common Stock, or as treasury Common Stock, at least the number of
shares of Common Stock required under the provisions of this Plan, or otherwise
assure itself of its ability to perform its obligations hereunder.
-5-
<PAGE>
B. UNUSED AND FORFEITED STOCK. The following shares of Common Stock shall
automatically become available for use under the Plan: (i) any shares of Common
Stock that are subject to an Award under this Plan that are not used because the
terms and conditions of the Award are not met, including any shares of Common
Stock that are subject to a Stock Option that expires or is terminated for any
reason, and (ii) any shares of Common Stock withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of a Non-Statutory Option.
C. CAPITAL CHANGES. If any change is made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted Awards under this Plan per calendar year, (iii) the number
and/or class of securities for which grants are subsequently to be made pursuant
to Article VI of this Plan, and (iv) the number and/or class of securities and
the Option Price per share in effect under each outstanding option under this
Plan. Such adjustments to the outstanding options are to be effected in a manner
that shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Committee shall be final,
binding and conclusive.
ARTICLE VI
DISCRETIONARY STOCK OPTION GRANT PROGRAM
A. DISCRETIONARY GRANT OF STOCK OPTIONS TO PARTICIPANTS. The Committee may
from time to time authorize grants to Participants of options to purchase shares
of Common Stock upon such terms and conditions as the Committee may determine in
accordance with the following provisions (in connection with any grants under
this paragraph VI.A to Non-Employee Directors, "Committee" shall mean the entire
Board of Directors):
1. Each grant shall specify the number of shares of Common Stock
to which it pertains;
2. Each grant shall specify the Option Price per share, which shall
be not less than the average of the closing prices of the Common Stock on the
Vancouver Stock Exchange on the ten trading days immediately preceding the date
on which the Award of the Stock Option is announced;
3. Each grant shall specify that the consideration to be paid in
satisfaction of the Option Price shall be paid in cash in the form of currency
or check or other cash equivalent acceptable to the Company;
4. Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker of some or all of the shares of
Common Stock to which the exercise relates;
-6-
<PAGE>
5. Any grant may provide that shares of Common Stock issuable upon
the exercise of a Stock Option shall be subject to restrictions whereby the
Company has the right or obligation to repurchase all or a portion of such
shares if the Participant's service to the Company is terminated before a
specified time, or if certain other events occur or conditions are not met;
6. Successive grants may be made to the same Participant regardless
of whether any Stock Options previously granted to the Participant remain
unexercised;
7. Each grant shall specify the conditions to be satisfied before
the Stock Option or installments thereof shall vest or become exercisable,
including a period of at least two years of continuous service by the Optionee
to the Company or any Subsidiary before an option shall be 100% vested, provided
that it may vest in equal installments over such period, and which conditions
may also include the attainment of specified performance goals and objectives,
or the occurrence of specified events; as may be established by the Committee
with respect to such grant;
8. All Stock Options that meet the requirements of the Code for
"incentive stock options" shall be Statutory Stock Options unless (i) the option
agreement clearly designates the Stock Options granted thereunder, or a
specified portion thereof, as a Non-Statutory Option, or (ii) a grant of
Statutory Stock Options to the Participant would be prohibited under the Code or
other applicable law;
9. Each grant shall specify the Term of the Stock Option, which Term
shall not be greater than 5 years from the Date of Grant; and
10. Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof and delivered to and
accepted by the Optionee and shall contain such terms and provisions as the
Committee may determine consistent with this Plan.
B. SPECIAL TERMS APPLICABLE TO STATUTORY STOCK OPTIONS. The following
additional terms shall be applicable to all Statutory Stock Options granted
pursuant to this Plan. Stock Options that are specifically designated as
Non-Statutory Options shall not be subject to the terms of this paragraph VI.B.
1. Statutory Stock Options shall be granted only to Employees of
the Company or a Subsidiary;
2. In addition to the requirements in paragraph VI.A.2, above, the
Option Price per share shall not be less than the Fair Market Value per share of
Common Stock on the Date of Grant;
3. The aggregate Fair Market Value of the shares of Common Stock
(determined as of the respective Date(s) of Grant) with respect to which
Statutory Stock Options granted to any Employee under the Plan (or any other
plan of the Company or a Subsidiary) are exercisable for the first time during
any one calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such Stock Options
that become
-7-
<PAGE>
exercisable for the first time in the same calendar year, the foregoing
limitation on the treatment of such Stock Options as Statutory Stock Options
shall be applied on the basis of the order in which such Stock Options are
granted; and
4. If any Employee to whom a Statutory Stock Option is granted is a
10% Stockholder, then the Option Price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the Date of Grant.
ARTICLE VII
TERMINATION OF SERVICE
The following provisions shall govern the exercise of any Stock Options
held by any Employee whose employment is terminated:
1. If the Optionee's employment, service on the Board or consultancy
with the Company is terminated for any reason other than such Optionee's death
or disability, all Statutory Stock Options held by the Optionee shall be
exercisable, to the extent that such Stock Options were exercisable on the date
the Optionee's employment terminated, for a period of one (1) month following
such termination of employment.
2. If the Optionee's employment with the Company is terminated
because of such Optionee's death or disability within the meaning of Section
22(e)(3) of the Code, all Stock Options held by the Optionee shall become
immediately exercisable and shall be exercisable for a period of twelve (12)
months following such termination of employment.
3. In no event may any Stock Option remain exercisable after the
expiration of the Term of the Stock Option. Upon the expiration of any one (1)
or twelve (12) month exercise period, as applicable, or, if earlier, upon the
expiration of the Term of the Stock Option, the Stock Option shall terminate and
shall cease to be outstanding for any shares for which the Stock Option has not
been exercised.
ARTICLE VIII
NONTRANSFERABILITY OF STOCK OPTIONS
During the lifetime of the Optionee, Stock Options shall be exercisable
only by the Optionee and shall not be assignable or transferable. In the event
of the Optionee's death prior to the end of the Term, any Stock Option may be
exercised by the personal representative of the Optionee's estate, or by the
person(s) to whom the option is transferred pursuant to the Optionee's will or
in accordance with the laws of descent and distribution.
-8-
<PAGE>
ARTICLE IX
STOCKHOLDER RIGHTS
The holder of a Stock Option shall have no stockholder rights with respect
to the shares subject to the Stock Option until such person shall have exercised
the Stock Option, paid the Option Price and become a holder of record of the
purchased shares of Common Stock.
ARTICLE X
ACCELERATION OF VESTING
The Committee may, at any time in its sole discretion, accelerate the
vesting of any Award made pursuant to this Plan by giving written notice to the
Participant. Upon receipt of such notice, the Participant and the Company shall
amend the agreement relating to the Award to reflect the new vesting schedule.
The acceleration of the exercise period of an Award shall not affect the
expiration date of such Award.
ARTICLE XI
CHANGE IN CONTROL
In the event of a Change in Control of the Company, all Awards outstanding
under the Plan as of the day before the consummation of such Change in Control
shall automatically accelerate for all purposes under this Plan so that each
Stock Option shall become fully exercisable with respect to the total number of
shares subject to such Stock Option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock as of such date, without regard to
the conditions expressed in the agreements relating to such Stock Option.
ARTICLE XII
CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority, at any and from time to time, with
the consent of the affected Optionees, to effect the cancellation of any or all
outstanding Stock Options and grant in substitution new Stock Options covering
the same or different number of shares of Common Stock. In the case of such a
regrant of a Stock Option, the Option Price shall be set in accordance with
Article VI on the new Date of Grant.
ARTICLE XIII
FINANCING
The Committee may, in its sole discretion, authorize the Company to
arrange or guaranty loans to a Participant by a third party in connection with
the exercise of a Stock Option.
-9-
<PAGE>
ARTICLE XIV
TAX WITHHOLDING
A. TAX WITHHOLDING. The Company's obligation to deliver shares of Common
Stock upon the exercise of Stock Options under the Plan shall be subject to the
satisfaction of all applicable federal, state and local income and employment
tax withholding requirements.
B. SURRENDER OF SHARES. The Committee may, in its discretion, provide any
or all holders of Non-Statutory Options under the Discretionary Stock Option
Grant Program with the right to use shares of Common Stock in satisfaction of
all or part of the taxes incurred by such holders in connection with the
exercise of such Stock Options. Such right may be provided to any such holder in
either or both of the following formats:
1. The election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such Non-Statutory Option,
a portion of those shares with an aggregate Fair Market Value less than or equal
to the amount of taxes due as designated by such holder; or
2. The election to deliver to the Company, at the time the
Non-Statutory Option is exercised, one or more shares of Common Stock previously
acquired by such holder with an aggregate Fair Market Value less than or equal
to the amount of taxes due as designated by such holder.
ARTICLE XV
EFFECTIVE DATE AND TERM OF THE PLAN
This Plan shall become effective on the Plan Effective Date. This Plan
shall terminate upon the earliest of (i) ten (10) years after the Plan Effective
Date or (ii) the termination of all outstanding Awards in connection with a
Change in Control. Upon such plan termination, all outstanding Awards shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such Awards.
ARTICLE XVI
AMENDMENT OF THE PLAN
A. The Plan Committee may recommend that the Plan be amended or modified
in any or all respects and submit such amendments or modifications for
stockholder approval. No such amendment or modification shall adversely affect
the rights and obligations with respect to Awards outstanding under the Plan at
the time of such amendment or modification, unless the Participant consents to
such amendment or modification.
-10-
<PAGE>
ARTICLE XVII
REGULATORY APPROVALS
The implementation of the Plan, the granting of any Award under the Plan
and the issuance of any shares of Common Stock under any Award shall be subject
to the Company's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the Awards granted pursuant to
the Plan and the shares of Common Stock issued pursuant to any Award under the
Plan. No Stock Option shall be exercisable and no shares of Common Stock or
other assets shall be issued or delivered under the Plan, unless and until there
shall have been compliance with (i) all applicable requirements of Federal and
state securities laws, including, if applicable, the filing and effectiveness of
a registration statement on Form S-8 under the Securities Act of 1933, as
amended, covering the shares of Common Stock issuable under the Plan, and (ii)
all applicable listing requirements of any stock exchange or securities trading
market on which the shares of Common Stock are listed or traded.
ARTICLE XVIII
NO EMPLOYMENT/SERVICE RIGHTS
Nothing in this Plan shall confer upon any Participant any right to
continue in service for any period or specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Subsidiary
employing or retaining such person) or of the Participant, which rights are
hereby expressly reserved by each, to terminate such person's service at any
time for any reason, with or without Cause.
-11-
EXHIBIT 10.4
E-XACT TRANSACTIONS
1610-555 W. Hastings Street
Vancouver, BC V6B 4N6
September 16, 1999
Mr. Ted Henderson
22398 Blue Jay Road
Morrison, CO 80465
Dear Ted:
The Board of Directors of e-XACT Transactions Ltd. (hereafter referred to as
"the Company") is pleased to offer the position of Chief Executive Officer,
President and Director of the Company. In this role, you will report to the
Board of Directors of the Company. This letter embodies the terms of our offer
of employment to you:
TERM
The initial term of this agreement shall be 12 months and shall automatically
renew for successive twelve month terms unless the Company provides to you
written notice of its intent to terminate this Agreement 60 days prior to the
expiration of the Agreement term, or subsequent annual anniversaries of the
Agreement term.
BASE SALARY
Your initial base compensation will be US $9,1667 per month to be paid
semi-monthly. The Board of Directors expects to review your base salary at least
on an annual basis. Over the next three years, you should expect your salary to
be brought to `market conditions' of comparable companies as you perform to the
company's business plan.
PERFORMANCE BONUS
You will be included in the Company's executive compensation program in which
you will be eligible for a bonus of up to
<PAGE>
Mr. Ted Henderson 2 September 16, 1999
50% of your annualized base salary based on the achievement of goals to be
mutually agreed upon between yourself and the Board of Directors.
You are to provide a proposal with respect to performance bonus criteria to be
approved by the Board of Directors. The bonus is to be paid quarterly in
arrears. We anticipate the bonus plan to be retroactive to your date of
employment, assuming that within ninety days of this date, you present the board
with an accepted plan.
The bonus plan you present to the Board will allow you, based on performance
beyond plan, to have the opportunity to increase your bonus beyond the 50% bonus
outlined in this offer letter.
EQUITY
You shall be eligible to receive 500,000 options to purchase common stock of the
Company at a price of US $1.00 per share, as authorized by the Board of
Directors. All equity options shall be based on the incentive stock option plan
of the Company, to be approved by the Board of Directors, in effect on _____,
1999, or as subsequently modified. All options are five year options as per the
rules of the Vancouver Stock Exchange.
Except in the event of Termination, all options granted to you during your
employment shall vest on the "seven thirty-six option plan", in which your
options will not begin vesting until your seventh (7th) month of employment, at
which time 7/36 of your option position will vest. Thereafter, each following
month, your option position will vest 1/36th per month and at the end of the
36th month, you will have fully vested your option position.
In the event of a change of control prior to the thirty-sixth month of your
employment, all options granted to you during your employment vest immediately
upon the change in control of the Company. A change of control is defined as a
minimum 51% change in equity ownership, excluding any financings in the capital
markets. A change of control includes, but is not limited to, the sale of assets
or other reorganization, acquisition by an independent third-party of a
controlling interest of the Company's stock, or a merger or consolidation in
which the Company is not the surviving or controlling entity.
<PAGE>
Mr. Ted Henderson 3 September 16, 1999
From time to time, but at least annually, the Board of Directors will review
your equity position with a view towards granting you additional options, within
the rules of the then applicable stock exchange, if you are judged to be
improving the overall value to all shareholders over and beyond plan.
JOB DESCRIPTION
As President and Chief Executive Officer of the Company, your job will include,
but not be limited to the following: creating and developing a sales and
marketing strategy for the Company to be approved by the Board of Directors;
directing the technology team to create a technological architecture able to
support the Sales and Marketing strategy; develop and hire an "Executive team"
to be based in the state of Colorado that may include a Chief Marketing Officer
(CMO), a Chief Financial Officer (CFO), and a Sales and Marketing team;
overseeing general operations of the Company and create a functional, go forward
organizational structure; and executing the approved Sales and Marketing
strategy.
BENEFITS
The Company will pay your current benefits, including COBRA, for the first three
month period after your employment. As CEO, you need to create a benefits plan
for all employees of the company, to be approved by the Board of Directors,
within this 90 day period. In your specific case, the company will also pay for
a $1 million term life insurance program, with half the benefits going to your
heirs and half to the company.
VACATION
You will receive three (3) weeks of paid vacation per year.
TERMINATION
The Company may terminate your employment at any time with or without cause. The
term "cause" in this agreement means your: (A) conviction of a felony; (B) acts
of fraud or flagrant dishonesty; (C) gross misconduct including willful
<PAGE>
Mr. Ted Henderson 4 September 16, 1999
failure to continue to obey lawful written instruction of the Board of Directors
after 30 days written notice of your failure to do so and the Board's intention
to terminate if such failure is not corrected; or (D) failure to correct any
conduct which constitutes material breach of this Agreement (including failure
to execute the Company's approved business plan) after 30 days written notice of
your failure to do so and the Board's intention to terminate if such failure is
not corrected.
In the event that the Company terminates your employment without cause or elects
not to renew this Agreement, you will be given notice, in writing of the
Company's intent to not continue your employment at least two (2) months prior
to the effective date of your termination. If the Company terminates your
employment without cause or elects not to renew this Agreement, you shall be
allowed to immediately vest all your then granted but still unvested shares. In
this case you will also receive a lump sum separation equal to six full months
of salary and prorated bonus and all benefits will be paid by the Company for
six months.
If you are terminated for cause other than conviction of a felony or acts of
fraud or flagrant dishonesty no additional shares will be vested but you will
continue to receive your normal semi-monthly base compensation, including all
benefits, paid semi-monthly, for a period of six months after the effective date
of your termination. If you are terminated for other cause then no additional
shares will vest and no separation payments are due. Notice will be given in
writing.
In case of a change in reporting relationship as well as a change in location of
corporate headquarters the terms of termination without cause will apply.
FOR E-XACT TRANSACTIONS LTD.,
/S/LANCE TRACEY
Lance Tracey, Director
<PAGE>
Mr. Ted Henderson 5 September 16, 1999
I have read and accept the terms and conditions of employment contained herein.
/S/TED HENDERSON 9/16/99
- -------------------------- -----------------
Ted Henderson Date
EXHIBIT 10.5
BOLDER VENTURE PARTNERS
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
July 28, 1999
Messrs. Lance Tracey & Peter Fahlman
E-XACT TRANSACTIONS LTD.
1610 - 555 West Hastings Street
Vancouver, BC V6B 4N6
Dear Sirs:
We write to record our agreement (the "Agreement") with respect to the matters
described herein. This Agreement supersedes the Letter of Intent entered into by
us on June 21, 1999, which has no further effect. Bolder Venture Partners, LLC
("BVP") has reviewed e-XACT Transactions Ltd. ("e-XACT") and its e-commerce
software and is most impressed with the opportunity e-XACT has to become a
first-to-market service provider in the e-commerce world. BVP wishes to pursue
the opportunity presented by e-XACT and to play a significant role in aiding
e-XACT in its future growth and e-XACT wishes to engage BVP for that purpose.
Accordingly, BVP and e-XACT agree as follows:
1. BVP will lead a complete financing plan which will include the following:
(a) an initial U.S.$700,000 private placement (the "Initial Placement") to
close within 30 days after the later of (i) the signing of this Agreement,
and (ii) the corporate continuance of e-XACT into the State of Delaware,
subject to the completion, prior to the Initial Placement, of a capital
reorganization which will result in e-XACT having a fully-diluted capital
structure consisting of 4.2 million shares;
(b) immediately upon completion of the Initial Private Placement, BVP will lead
and direct an initial public offering (the "IPO") to raise approximately US
$1.5 million, depending on market conditions, and listing of e-XACT shares
on the Vancouver Stock Exchange (the "VSE"); and
<PAGE>
(c) following the IPO, BVP will complete a US $3,000,000 - US $5,000,000
private placement (the "Follow-On Placement") which will qualify e-XACT to
list its shares on the Nasdaq Small Cap Market Place.
In addition, e-XACT will pay BVP a success fee of U.S. $30,000, 50% on
closing of the Initial Placement and the balance (50%), on completion of
the IPO.
The time horizon from the Initial Placement through the IPO and to
completion of the Follow-On Placement which will be in the range of 12 - 24
months. BVP is prepared to fund, if required, as agent and as principal,
100% of each financing tranche and will fund not less than 50% of each
tranche.
e-XACT management will provide BVP with a "President's List" of close
personal friends, relatives and business associates who have expressed
interest in participating in financings carried out by e-XACT and BVP.
e-XACT management and BVP will agree on the approximate number of e-XACT
shares to be reserved for subscribers from the President's List. BVP will
have the right, but not the obligation, to accept subscriptions from the
President's List, in the denominations and to the persons set out therein.
BVP may include one or more a sub-agent in the financing process, if
required. The sub-agents shall consist of firms suggested by either e-XACT
or BVP. Sub-agents shall receive a percentage of any fees paid to BVP, in
an amount to be determined by BVP, for any portion of a financing raised by
them.
2. Subject to an approved capital reorganization of e-XACT, BVP proposes that:
(i) the Initial Placement consist of 1,400,000 shares at a price of US
$0.50 per share (US $700,000); (ii) the IPO consist of approximately
1,500,000 shares at approximately US $1.00 per share (US $1,500,000); and
(iii) the Follow-On Placement raise US $3,000,000 to US $5,000,000 at a
price to be determined with reference to market conditions at the time.
3. In partial consideration of BVP's services, e-XACT will issue BVP warrants
(the "Warrants") to purchase 900,000 shares exercisable for a period of
five years from the date hereof, which will vest in four equal trancbes,
subject to performance by BVP, as follows:
/_/ 25% of the Warrants will be exercisable upon execution by e-XACT of
this Agreement, at a price of U.S.$0.25 per share;
/_/ 25% of the Warrants will be exercisable upon completion of the Initial
Placement, at a price per share equal to the private placement price
(estimated to be US $0.50 per share);
/_/ 25% of the Warrants will be exercisable upon completion of the IPO, at
a price per Share equal to the IPO price (estimated to be US $1. 00
per share); and
<PAGE>
/_/ The final 25% of the Warrants will be exercisable immediately upon
completion of the Follow-On Placement, at a price equal to the private
placement price.
The Warrants and any shares issued upon their exercise will have the
customary anti-dilution protection and demand and piggyback registration
rights, which will be set out in the Warrant certificates.
If all of the Shares of e-XACT are purchased by a third party, unaffiliated
to e-XACT, its shareholders, officers or directors, prior to the vesting of
all of the Warrants in accordance with the foregoing schedule, BVP will
have no entitlement to exercise any Warrants which have not vested at the
time of completion of that transaction.
The vesting schedule, described above, notwithstanding, if e-XACT is
successful in securing a NASDAQ listing and concurrent financing in an
amount not less than the total of the amounts of the IPO and the Follow-On
Placement without first completing the IPO and VSE listing, the balance of
the unvested Warrants (450,000), will vest and be exercisable by BVP at a
price of U.S.$1.00 for the same term 5 year term as the previously vested
warrants.
4. e-XACT will pay BVP's reasonable out-of-pocket expenses up to $3,000 per
month. Expenses exceeding US $3,000 per month will require prior approval
from e-XACT management in order to qualify for reimbursement.
5. BVP will also serve as corporate development and financial advisor to
e-XACT for a period of 12 months, and in that capacity will advise and
assist with respect to matters including, but not limited to: (i) strategic
planning; (ii) the recruitment of senior management, employees and
directors; (iii) the establishment of operating presence in the United
States; and (iv) the financings described above, culminating in the
securing of a NASDAQ listing with sponsorship from a US investment banking
firm. This engagement will commence effective July 1, 1999 and will
continue to have effect until June 30, 2000. In consideration of BVP's
services in this advisory capacity, e-XACT will pay BVP a monthly fee of
U.S. $10,000 on the last business day of each month throughout the
engagement period, except that, prior to the completion of the IPO, US
$7,500 per month will be paid on the last business day of every month the
balance of U.S. $2,500 will be deferred and paid upon completion of the
IPO.
BVP looks forward to aiding current management in developing e-XACT into a major
e-commerce service provider. We believe that the combination of current
management's skills and the experience BVP brings, both from a technology and a
financial markets perspective, will successfully drive the growth of e-XACT.
Throughout the term of this agreement, BVP will report directly to both of you
on all financing and/ or operational issues concerning e-XACT.
<PAGE>
Please confirm our agreement, set forth above by executing, in the space
indicated below, and returning to us the enclosed copy of this letter.
Sincerely yours,
BOLDER VENTURE PARTNERS, LLC
/S/DARYL YUREK
Daryl Yurek
General Partner
Accepted and agreed to as per the terms set forth above, this 25th day of
June 1999.
e-XACT Transactions Ltd.
By: /S/DARYL YUREK
-----------------------------
Authorized Signatory
1
Management Agreement
This agreement made as of 15th day of April, 1999
BETWEEN: DataDirect Holdings Inc. a company duly incorporated under the Company
Act of B.C. and having its registered office at 1134 Prairie Avenue,
Vancouver, B.C., Canada.
OF THE FIRST PART
AND: Peter Fahlman, businessman of 855-554 Street, Delta, B.C.
OF THE SECOND PART
AND: Robert Roker, businessman of 2802-939 Homer Street, Vancouver, B.C.
OF THE THIRD PART
(Datadirect Holdings Inc., Peter Fahlman and Robert Roker collectively
referred to in this agreement as "DataDirect")
AND: E-xact Transactions Ltd. a company duly incorporated under the Company
Act of B.C. and having its registered office at 1628-555 West Hastings
Street, Vancouver,B.C. ( herein referred to as the "Exact" )
OF THE FOURTH PART
WHEREAS:
A. E-xact wishes to obtain the management services of DataDirect;
THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual
promises and the mutual obligations set out below, the parties, intending to be
legally bound, agree as follows:
APPOINTMENT AND DUTIES:
1. Exact (the "company") hereby appoints DataDirect as the manager. The
duties of the manager shall include but not limited to the following:
A. Oversee the continued development of Exact transaction software. In
particular the development should be concentrated in the following
areas:
1. Gateway Server
2. Transaction server
3. Remote Transaction Server
4. Audit database
5. Secure Web based merchant tools
B. Interview and appoint staff on behalf of Exact. Staff appointments
shall be based on the requirements of the company from time to time.
C. Provide guidance to the staff of Exact in the day to day activities
of the company.
D. Market the benefits of the software to potential customers.
E. Liaise with the company's legal counsel in drafting appropriate
transaction processing agreements. These agreements shall serve as a
bases for contracts with the company's customers.
F. Deal directly with the chartered banks in respect of any further
certification requirements.
<PAGE>
2
G. Oversee the purchase and maintenance all computer and network
equipment.
H. Expand the company's transaction processing to the US bank network.
I. Any other duties as may be required from time to time in order for the
company to continue its day to day operations.
FEES:
2. Exact agrees to pay DataDirect a fee of $20,000.00 plus GST per month
during the term of this agreement.
TERM:
3. Duties of DataDirect shall commence on April 15,1999 and shall continue on
a month to month basis.
TERMINATION
4. If DataDirect defaults in the observance of any of the covenants, terms
and conditions contained in this agreement and if such default shall
continue for a period of thirty ( 30 ) days after Exact has given the
DataDirect written notice specifying such default, then this agreement
and all the rights of the DataDirect shall forthwith terminate. Such
termination shall be concurrent with and in addition and without
prejudice to and not in lieu of or substitution for any other rights
herein contained or any and all remedies at law or in equity which the
Exact shall have for the enforcement of its rights under this agreement
and its remedies on the default of DataDirect under the conditions hereof.
5. Notwithstanding section 4, either party may terminate this agreement
upon giving 30 days written notice to the other party.
6. Upon termination of this agreement ,DataDirect undertakes not to compete
either directly or indirectly with Exact.
NOTICES
7. Notice hereunder shall be in writing and may be delivered by hand or by
mail addressed to the address of the parties hereto, as set out on the
first page of this agreement or to such other addresses as may be
substituted in writing. Any such notice shall be deemed to have been
received by the party to whom it is addressed, if delivered, when
delivered or, if sent by mail, within forty-eight (48) hours of the
posting of such notice in any post office.
<PAGE>
3
MISCELLANEOUS
8. This agreement shall be interpreted in accordance with and governed by
the laws of the Province of British Columbia.
9. The headings in this agreement are inserted for the reference only and
form no part of the agreement.
10. DataDirect shall not during the term of this agreement engage in any
business activity which competes either directly or indirectly with
Exact.
IN WITNESS WHEREOF the parties hereto have executed this agreement as of the day
and year first above written.
DataDirect Holdings Inc.
Per: [illegible signature]
-------------------------------
Authorized signatory
[illegible signature]
-------------------------------
Peter Fahlman
/s/Robert Roker
--------------------------------
Robert Roker
E-xact Transactions Ltd.
Per:
[illegible signature]
--------------------------------
Authorized signatory
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm in this Registration Statement of E-xact
Transactions Ltd. on Form SB-2 of our report dated August 13, 1999 (except as to
Note 14 which is as of October 20, 1999), which is part of this Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Vancouver, British Columbia, Canada
October 20, 1999
