<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2000
724 SOLUTIONS INC.
4101 Yonge Street, Suite 702
Toronto, Ontario, Canada M2P 1N6
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F
------------- ---------
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934
Yes No X
-------- ---------
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
82- N.A.
--------------
<PAGE>
724 SOLUTIONS INC.
Form 6-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
This Report includes the Registrant's Management Information Circular
relating to its Annual and Special Meeting of Shareholders, scheduled to
be held on May 31, 2000, together with the Registrant's 1999 Report to
Shareholders.
Signatures................................................................. 3
Exhibit 99.1: Management Information Circular
Exhibit 99.2: Notice of Meeting
Exhibit 99.3: Form of Proxy
Exhibit 99.4: Policy 41 Card relating to Interim Financial Statements
Exhibit 99.5: 1999 Report to Shareholders
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
724 SOLUTIONS INC.
By: /s/ Karen Basian
------------------------------
Name: Karen Basian
Title: Chief Financial Officer
Date: May 3, 2000
3
<PAGE>
724 SOLUTIONS INC.
SUITE 702, 4101 YONGE STREET
TORONTO, ONTARIO M2P 1N6
MANAGEMENT INFORMATION CIRCULAR
RELATING TO THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 31, 2000
SOLICITATION OF PROXIES
THIS MANAGEMENT INFORMATION CIRCULAR IS FURNISHED IN CONNECTION
WITH THE SOLICITATION BY MANAGEMENT OF 724 SOLUTIONS INC. (THE "CORPORATION")
OF PROXIES TO BE USED AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF
THE CORPORATION (THE "MEETING") to be held on the 31st day of May, 2000, at
the time and place and for the purposes set forth in the Notice of Meeting
accompanying this Management Information Circular and at any adjournment or
adjournments thereof. It is expected that the solicitation will be primarily
by mail. The costs of the solicitation will be borne by the Corporation.
Proxies may also be solicited personally by directors, officers or employees
of the Corporation at nominal cost. This Management Information Circular and
the accompanying proxy and Annual Report are expected to be first mailed to
shareholders on or about May 1, 2000.
UNLESS OTHERWISE INDICATED, INFORMATION CONTAINED HEREIN IS GIVEN
AS OF APRIL 7, 2000 AND ALL DOLLAR AMOUNTS HEREIN ARE STATED IN UNITED STATES
DOLLARS. Management knows of no matters to come before the Meeting other than
the matters referred to in the accompanying Notice of Meeting.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of Proxy are directors
and/or officers of the Corporation. A shareholder desiring to appoint some
other person to attend, act and vote for him or her and on his or her behalf
at the Meeting and at any adjournments thereof may do so either by inserting
such person's name in the blank space provided in the form of Proxy or by
completing another proper form of Proxy and, in either case, delivering the
completed Proxy to the Corporation c/o Montreal Trust Company of Canada, the
Registrar and Transfer Agent of the Corporation, at 151 Front Street West,
8th Floor, Toronto, Ontario, M5J 2N1, Attention: Stock Transfer Department,
or returning it by mail in the envelope provided for that purpose, in either
case so that it is received by Montreal Trust Company of Canada at the
above-noted office by no later than 5:00 p.m. (Toronto time) on Monday, May
29, 2000 or, in the case of any adjournment of the Meeting, by no later than
5:00 p.m. (Toronto time) on the second business day immediately preceding the
date of such adjourned meeting.
The Proxy must be signed by the shareholder, or by his or her
attorney authorized in writing, as his or her name appears on the
Corporation's register of shareholders. If the shareholder is a corporation,
the Proxy must be executed by an officer or attorney thereof duly authorized.
In addition to revocation in any other manner permitted by law, a
Proxy given pursuant to this solicitation may be revoked by instrument in
writing executed by the shareholder or by his or her attorney authorized in
writing or, if the shareholder is a corporation, by an officer or attorney
thereof duly authorized, and deposited either:
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(A) at the registered office of the Corporation at any time up to and
including the last business day preceding the day of the Meeting, or
any adjournments thereof, at which the Proxy is to be used; or
(B) with the chairman of such meeting on the day of the Meeting, or
any adjournments thereof.
Upon either of such deposits, the Proxy is revoked.
EXERCISE OF DISCRETION BY PROXIES
The persons named in the enclosed form of Proxy will vote or
withhold from voting the shares in respect of which they are appointed on any
ballot that may be called for in accordance with the direction of the
shareholders appointing them and, if a shareholder specifies a choice with
respect to any matter to be acted upon, the shares shall be voted
accordingly. IN THE ABSENCE OF SUCH DIRECTION, SUCH SHARES WILL BE VOTED FOR
ALL OF THE MATTERS REFERRED TO IN ITEMS (A), (B), (C), (D) AND (E) IN THE
ACCOMPANYING PROXY, ALL AS STATED UNDER THE APPROPRIATE HEADINGS IN THIS
MANAGEMENT INFORMATION CIRCULAR.
THE ENCLOSED FORM OF PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE
PERSONS NAMED THEREIN WITH RESPECT TO AMENDMENTS OR VARIATIONS TO MATTERS
IDENTIFIED IN THE NOTICE OF MEETING AND WITH RESPECT TO OTHER MATTERS WHICH
MAY PROPERLY COME BEFORE THE MEETING. AS OF THE DATE OF THIS MANAGEMENT
INFORMATION CIRCULAR, MANAGEMENT OF THE CORPORATION KNOWS OF NO SUCH
AMENDMENTS, VARIATIONS OR OTHER MATTERS TO COME BEFORE THE MEETING. HOWEVER,
IF ANY SUCH AMENDMENTS, VARIATIONS OR OTHER MATTERS NOT NOW KNOWN TO
MANAGEMENT OF THE CORPORATION SHOULD PROPERLY COME BEFORE THE MEETING, THE
SHARES REPRESENTED BY THE PROXIES HEREBY SOLICITED WILL BE VOTED THEREON IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSON OR PERSONS VOTING SUCH
PROXIES.
ANNUAL REPORT
The consolidated financial statements of the Corporation for the
fiscal year ended December 31, 1999, and the Auditors' Report thereon, will
be placed before the Shareholders.
THE CORPORATION
The Corporation is engaged primarily in the business of developing
and providing Internet infrastructure solutions to financial institutions
that enable them to offer personalized and secure banking, brokerage and
e-commerce services across a wide range of Internet-enabled wireless and
consumer electronic devices. The 724 Solutions Financial Services Platform
(the "724 Solutions FSP") enables consumers to access online banking and
brokerage services through network service providers using digital mobile
phones, personal digital assistants, two-way pagers and personal computers.
The Corporation is the parent company of the following wholly-owned
subsidiaries, through which it also carries on its business: 724 Solutions
International SRL, 724 Solutions Corp., 724 Solutions (UK) Limited, 724
Solutions SRL Holdco Inc., YRLess Internet Corporation and Sapphire Merger
Sub, Inc., which are corporations incorporated, or amalgamated in the case of
YRLess Internet Corporation, under the laws of Barbados, the state of
Delaware, the United Kingdom, the Province of Ontario, Canada and the State
of California, respectively.
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VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized capital of the Corporation consists of an unlimited
number of preference shares, issuable in series, and an unlimited number of
common shares (the "Common Shares"). Shareholders of the Corporation (the
"Shareholders") are entitled to exercise one vote in respect of each Common
Share held. At all meetings of Shareholders, each Common Share entitles the
registered holder thereof to one vote, which may be exercised in person or by
proxy. Shares represented at the Meeting in person or by proxy will be
counted toward the existence of a quorum notwithstanding their abstention or
non-vote on certain matters. Abstentions and non-votes with respect to a
particular proposal will not be counted toward the total number of votes
cast, however, in determining whether such proposal receives the necessary
approval.
As at April 7, 2000, the Corporation had outstanding 36,491,258
Common Shares, each carrying the right to one vote. No preference shares have
been issued.
The Corporation has fixed April 25, 2000 as the record date (the
"Record Date") for Shareholders entitled to receive notice of the Meeting. In
accordance with the provisions of the BUSINESS CORPORATIONS ACT (Ontario)
(the "Act"), the Corporation will prepare a list of Shareholders as at the
close of business on the Record Date. In accordance with the voting rights
attaching to the Common Shares, each Shareholder named in the list will be
entitled to vote the shares shown opposite his or her name on the said list,
except to the extent that: (i) the Shareholder has transferred any of his or
her Common Shares after the Record Date; and (ii) the transferee of those
shares produces properly endorsed share certificates or otherwise establishes
that he or she owns the shares and demands, not later than 10 days before the
Meeting, that his or her name be included on the list of Shareholders before
the Meeting, in which case the transferee will be entitled to vote his or her
shares at the Meeting. The failure of a Shareholder to receive the Notice of
Meeting does not deprive him or her of the right to vote at the Meeting.
To the knowledge of the directors and officers of the Corporation,
as at April 7, 2000, the only shareholders of the Corporation beneficially
owning or exercising control or direction over more than 10% of the Common
Shares of the Corporation are as follows:
<TABLE>
<CAPTION>
TYPE OF OWNERSHIP NUMBER OF COMMON
NAME OF SHAREHOLDER SHARES PERCENT OF CLASS
- - ----------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C>
Beneficially 8,000,000 21.9%
Gregory Wolfond 1 and/or Exercise
Toronto, Ontario of Control and
Direction
Sonera Corporation 2 Beneficially 6,400,000 17.5%
Helsinki, Finland
Citigroup Inc. 3 Beneficially 6,400,000 17.5%
New York, NY
</TABLE>
Notes:
1. These shares are held of record by Blue Sky Capital Corporation
(4,000,000 Common Shares) and 1319079 Ontario Inc. (4,000,000 Common
Shares), which are privately-held entities of which Mr. Wolfond is
the majority shareholder or has the sole power to vote and direct the
disposition of the shares of the Corporation owned by such entities.
2. These shares are held of record by SmartTrust Holding B.V., a
subsidiary of Sonera Corporation.
3. These shares are held of record by Citicorp Strategic Technology
Corporation, a subsidiary of Citigroup Inc.
<PAGE>
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AMENDMENT TO THE ARTICLES OF THE CORPORATION WITH RESPECT TO
THE MINIMUM NUMBER OF DIRECTORS
Currently, the Articles of the Corporation provide for a board of
directors consisting of a minimum of one director and a maximum of twenty
directors. Under the Act, OFFERING CORPORATIONS (a term which includes
corporations whose shares are listed on The Toronto Stock Exchange) are
required to have a minimum of three directors. The Corporation currently has
nine directors. The Shareholders are being asked to approve a special
resolution amending the Articles of the Corporation such that the minimum
number of directors is three. The purpose of this amendment is to conform the
Articles of the Corporation to the requirements of the Act, given that the
Corporation is an offering corporation. In order to be effective, the
proposed special resolution must be passed by a majority of not less than
two-thirds of the votes cast at the Meeting by Shareholders who vote in
respect of this resolution, in person or by proxy. The text of the resolution
with respect to this matter to be passed by Shareholders as a special
resolution is set out in Schedule "A" to this Management Information
Circular. Unless such authority is withheld, the persons named in the
accompanying form of proxy intend to vote FOR this special resolution.
DETERMINATION OF NUMBER OF DIRECTORS
The Corporation currently has nine directors. The Corporation has
undertaken, as a condition of listing on The Toronto Stock Exchange (the
"TSE") and on the Nasdaq National Market ("NASDAQ"), to cause the election of
two additional "independent" directors to the Corporation's board of
directors (the "Board of Directors") by June 9, 2000.
This undertaking was required, in part, as a result of recent
amendments to NASDAQ's listing requirements, which, as of December 14, 1999,
require each listed company to have at least two "independent" directors.
NASDAQ's rules also currently require that the majority of a listed company's
audit committee consist of "independent" directors. NASDAQ granted the
Corporation until June 9, 2000 to comply with these requirements. The
amendments to NASDAQ's rules specify the types of relationships that
disqualify a director from being considered "independent". In summary, a
director will NOT be considered "independent" if, among other things, he or
she has:
(a) been employed by the listed company or its affiliates in the
current or past three years;
(b) accepted any compensation from the listed company or its
affiliates in excess of $60,000 during the previous fiscal year
(except for board service, retirement plan benefits, or
non-discretionary compensation);
(c) an immediate family member who is, or has been in the past three
years, employed by the listed company or its affiliates as an
executive officer;
(d) been a partner, controlling shareholder or an executive officer of
any for-profit business to which the listed company made, or from
which it received, payments (other than those which arise solely from
investments in the listed company's securities) that exceed five
percent of the organization's consolidated gross revenues for that
year, or $200,000, whichever is greater, in any of the past three
years; or
(e) been employed as an executive of another entity where any of the
listed company's executive officers serve on that entity's
compensation committee.
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NASDAQ also amended its audit committee listing standards.
Companies that applied for listing on or before December 14, 1999, such as
the Corporation, are given until June 14, 2000 to adopt a written audit
committee charter and until June 14, 2001 to meet the new audit committee
structure and membership requirements. According to these new audit committee
structure and membership requirements, the Corporation's Audit Committee will
be required, by June 14, 2001, among other things, to have a minimum of three
members and be comprised solely of independent directors who are able to read
and understand financial statements. In addition, at least one director will
be required to have past employment experience in finance or accounting,
professional certification in accounting (or other comparable experience)
including a current or past position as chief executive or chief financial
officer (or other officer with financial oversight responsibilities). The
Corporation has adopted a formal audit committee charter and will meet the
balance of NASDAQ's audit committee requirements in two steps: (i) if Holger
Kluge, Heather Reisman and Barry Reiter are elected to the Board of Directors
(see "Election of Directors"), the Corporation will reconstitute its audit
committee in order to meet NASDAQ's interim requirement that each listed
company have at least two independent directors and comply with its
undertaking to do so by June 9, 2000; and (ii) management of the Corporation
will work with the Corporate Governance Committee of the Board of Directors
and the Audit Committee in order to comply with all of NASDAQ's new audit
committee structure and membership requirements, which apply to all companies
listed on NASDAQ, by June 14, 2001.
In order to satisfy the undertaking given to the TSE in connection
with the Corporation's initial public offering, the Corporation similarly has
to appoint two "independent" directors who are: (i) not an officer, employee
or consultant of the Corporation; (ii) not an employee, consultant, director
or officer of an entity which directly or indirectly holds more than 5% of
the issued and outstanding common shares of the Corporation on a
fully-diluted basis; and (iii) free from any interest and any business or
other relationship which could, or could reasonably be perceived to,
materially interfere with such person's ability to act with a view to the
best interests of the Corporation. As part of its undertaking given to the
TSE, the Corporation also must ensure that one of the two independent
directors has had prior experience as a director of a listed company.
Accordingly, in order to comply with NASDAQ's independent director
and audit committee listing standards and with the Corporation's undertakings
to both NASDAQ and the TSE, the Shareholders are being asked to approve a
special resolution fixing the number of directors, and the number of
directors to be elected at the Meeting, at 12 (an increase from the current
nine directors) and empowering the directors to determine, from time to time,
by resolution the number of directors between the minimum and the maximum set
out in the Articles of the Corporation. The purpose of the special resolution
is to provide flexibility for the Corporation to add additional qualified
individuals to the Board of Directors without having to wait for a
shareholders' meeting or having to convene a shareholders' meeting for the
purpose of adding the additional board member(s). This added flexibility will
also permit the Corporation to add additional independent directors who will
be appointed to the Audit Committee in order to comply with NASDAQ's audit
committee membership requirements discussed briefly above.
In order to be effective, the proposed special resolution must be
passed by a majority of not less than two-thirds of the votes cast at the
Meeting by Shareholders who vote in respect of this resolution, in person or
by proxy. The text of the resolution with respect to this matter to be passed
by Shareholders as a special resolution is set out in Schedule "B" to this
Management Information Circular. Unless such authority is withheld, the
persons named in the accompanying form of proxy intend to vote FOR this
special resolution.
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AMENDMENTS TO THE CORPORATION'S 2000 STOCK OPTION PLAN
As of February 2, 2000, the date on which the Corporation's initial
public offering closed, options to purchase approximately 3,000,000 Common
Shares under the Corporation's Canadian Stock Option Plan and U.S. Stock
Option Plan (the "Pre-IPO Plans") were outstanding. See "Executive
Compensation-Stock Option Plans" for a description of the Corporation's stock
option plans.
The Corporation's 2000 Stock Option Plan (the "2000 Plan")
currently provides that options may be granted in respect of a maximum of
2,000,000 Common Shares which may be reserved for issuance under the 2000
Plan (subject to any adjustment to this number pursuant to the terms of the
2000 Plan). At the time of the Corporation's initial public offering, it was
felt that this number would be sufficient for the first year and a half
following the initial public offering and that any required increase could be
tabled at the 2001 Annual Meeting of the Shareholders (the "2001 Meeting").
However, current circumstances suggest that an increase in the maximum number
of Common Shares reserved for issuance under the 2000 Plan will be necessary
prior to the 2001 Meeting.
As of April 24, 2000, options to purchase 393,800 Common Shares
under the 2000 Plan have already been granted by the Corporation to
approximately 85 employees who have commenced employment with the Corporation
or its subsidiaries since the initial public offering. The Corporation
continues to hire employees on a weekly basis and anticipates that this
hiring trend will continue and increase during the next year. The Corporation
has completed one acquisition and has announced a pending acquisition, each
of which require that options be granted to the employees of the new
affiliate. As well, the Corporation wishes to pursue additional acquisitions
prior to the 2001 Meeting, which will likely involve granting options to
additional employees. The Corporation also foresees hiring several senior
executives to build the Corporation's management team and is aware that high
profile, experienced, software industry executives typically expect to
receive attractive compensation packages, which include significant option
grants. Stock option grants are an important element of the Corporation's
compensation policies and enable the Corporation to attract and retain the
most qualified and motivated workforce possible in light of the highly
competitive global environment in which the Corporation operates. By being
able to offer employment packages which contain attractive stock option
grants, the Corporation is able to grow its business in a manner that ties
its employees to its future success, while conserving cash resources which
might otherwise have been paid through higher salaries.
Under the current circumstances, the Corporation anticipates that
it will likely fully utilize the aggregate number of options that may
currently be granted under the 2000 Plan before the 2001 Meeting. This would
require the Corporation to convene an early meeting of the shareholders, at
significant cost and with the resulting distraction to management. The
Corporation's business plans contemplate significant growth and a suspension
of the Corporation's new hire program would significantly impact its business
operations and its ability to pursue acquisitions or complete then pending
acquisitions.
The TSE and NASDAQ rules require that Shareholder approval be
obtained in order to increase the maximum number of Common Shares reserved
for issuance under the 2000 Plan. Accordingly, the Shareholders are being
asked to approve an amendment to the 2000 Plan whereby the maximum number of
Common Shares to be reserved for issuance under the 2000 Plan will be
increased by 1,800,000 Common Shares (the "Proposed Amendment").
If all outstanding options issued under the Pre-IPO Plans and under
the 2000 Plan (assuming the Proposed Amendment was approved) were exercised,
the total number of Common Shares that would be issued represents, on a
pre-issuance basis, approximately 18.6% of the Corporation's issued and
outstanding share capital as at April 7, 2000 (15.7% on a when-issued basis).
It is anticipated, however, that the 2000 Plan, as amended, would not be
fully exhausted until the end of fiscal 2001.
<PAGE>
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According to a study completed by a renowned employee benefits consultant,
many of the Corporation's peer group of North American software companies,
including its principal competitors, have option overhangs (i.e., total
options outstanding plus options authorized but unissued, divided by total
shares issued and outstanding) ranging between 13% (peer group median) and
24.5% (peer group 75th percentile). With a total overhang of 18.6%, the
Corporation's stock option plans would be within this range. According to
this study, the Corporation's option burn rate (i.e., options granted in the
particular fiscal year, divided by total Common Shares issued and outstanding
at the end of the fiscal year) and the individual option grant levels were
also in line with industry standards.
In light of the circumstances discussed above, the Board of
Directors approved the Proposed Amendment on April 25, 2000, subject to
regulatory and Shareholder approval. The TSE has approved the Proposed
Amendment, subject to the Corporation receiving Shareholder approval.
NASDAQ's rules only require that the Proposed Amendment be approved by the
Shareholders. In order to be effective, the proposed resolution must be
passed by a majority of the votes cast at the Meeting by the Shareholders who
vote in respect of this resolution, in person or by proxy. The Board of
Directors has determined that the Proposed Amendment is in the best interests
of both the Corporation and its Shareholders, and unanimously recommends that
the Shareholders vote in favour of this resolution. Unless such authority is
withheld, the persons named in the accompanying form of proxy intend to vote
FOR this resolution.
ELECTION OF DIRECTORS
At the date of this Management Information Circular, the Articles
of the Corporation provide for a flexible number of directors, subject to a
minimum of one and a maximum of twenty. The Corporation has nine directors
whose terms of office all expire at the Meeting, subject to the provisions of
the Act. Assuming approval of the resolution fixing the number of directors,
and the number of directors to be elected at the Meeting, at 12, the
Shareholders will be asked to elect 12 directors. A MAJORITY OF THE BOARD OF
DIRECTORS AND OF EVERY COMMITTEE OF DIRECTORS MUST BE RESIDENTS OF CANADA
WITHIN THE MEANING GIVEN TO SUCH TERM IN THE ACT. PURSUANT TO THE
CORPORATION'S UNDERTAKINGS TO THE TSE AND NASDAQ, AS DISCUSSED ABOVE, AT
LEAST TWO INDIVIDUALS WHO SATISFY BOTH EXCHANGES' "INDEPENDENCE" REQUIREMENTS
MUST BE ELECTED TO THE BOARD OF DIRECTORS.
The persons named in the enclosed form of proxy intend to vote FOR
the election of the proposed nominees whose names are set forth in the table
below. With the exception of Holger Kluge, Heather Reisman and Barry Reiter,
the proposed nominees are all now members of the Board of Directors and have
been since the years indicated. If the Shareholders approve the special
resolution fixing the number of directors at 12, management will propose Mr.
Kluge, Ms. Reisman and Mr. Reiter as nominees for election to the Board of
Directors.
Mr. Kluge was President, Personal and Commercial Bank, CIBC from
1990 until he retired in May 1999. Mr. Kluge joined CIBC in 1959 and held
various management positions in the CIBC branch system in Canada and in
corporate and international banking in Singapore, Japan and Hong Kong. In
1981, he was appointed Vice President, Asia-Pacific operations; and, in 1984,
he returned to Canada as Senior Vice President responsible for international
operations. In 1990, Mr. Kluge was appointed as CIBC's President, Individual
Bank, where he was responsible for retail and private banking operations
worldwide. CIBC's Individual Bank division was renamed Personal and
Commercial Bank in 1993 to more accurately reflect the unit's
responsibilities. Mr. Kluge is a director of CIBC West Indies Holdings
Limited, CEF Holdings Limited and T.A.L. Global Asset Management Inc. His
current directorships include Husky Oil Ltd. (an oil and gas company),
Vlinx.com (an e-commerce venture), Tom.com Limited (a start-up internet
portal for China) and Prologic Corp. (a developer of software solutions for
the global financial services industry). Mr. Kluge is Chairman and a director
of the Corporate Council on Youth in the Economy, as well as Vice Chairman of
the Canadian Bankers'
<PAGE>
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Association. Mr. Kluge satisfies both the TSE's and NASDAQ's independent
director requirements, and also satisfies the TSE's requirement that one of
the two "independent" directors to be added to the Board of Directors must
have had experience as a director of a listed company.
Ms. Reisman is President, Chair and Chief Executive Officer of
Indigo Books and Music, Inc. Prior to starting Indigo Books and Music, Inc.
in 1996, she was President of Cott Corporation, a leading supplier of quality
retailer-branded beverages. Ms. Reisman, a past Governor of the TSE and of
McGill University, is currently a member of the board of Rogers Cable Inc.
(an entertainment, information and communication services company), Chair of
the board of Vincor International Inc. (an international wine company) and an
Officer and member of the Executive Committee of Mount Sinai Hospital. Ms.
Reisman satisfies both the TSE's and NASDAQ's independent director
requirements, and also satisfies the TSE's requirement that one of the two
"independent" directors to be added to the Board of Directors must have had
experience as a director of a listed company.
Mr. Reiter has been a corporate/commercial and technology lawyer at
Torys (an international law firm) since 1982, and he is Chairman of the Torys
Technology Group. He is currently Chairman of Algorithmics Inc. and Battery
Technologies Inc., and a director of Alliance Atlantis Communications Inc.,
Efos Inc., Lorus Therapeutics Inc. and Telepanel Systems Inc. Prior to
joining Torys, Mr. Reiter was a law professor at the Faculty of Law,
University of Toronto. Mr. Reiter satisfies both the TSE's and NASDAQ's
independent director requirements, and also satisfies the TSE's requirement
that one of the two "independent" directors to be added to the Board of
Directors must have had experience as a director of a listed company.
Proxies conferring authority to vote for the election of those
individuals to be nominated by management will be voted FOR the election of
all of the proposed nominees in the absence of directions from the
Shareholders granting such proxies to withhold from voting for one or more
proposed nominee(s). Management does not contemplate that any of the proposed
nominees will be unable to serve as a director but, if that should occur for
any reason prior to the Meeting, the form of proxy accompanying this
Management Information Circular confers on the persons named in the proxy the
right to vote for another nominee in their discretion. In the election of
directors, the nine or, if the Shareholders approve the proposed increase in
the number of directors, 12 nominees receiving the highest number of
affirmative votes in respect of the Common Shares present or represented and
voting (in person or by proxy) on the election of directors at the Meeting,
shall be elected as directors. Each director will hold office until the next
annual election of directors or until his or her successor is elected, unless
his or her office is earlier vacated.
The Corporation's Board of Directors does not have an executive
committee. It is required to have an audit committee. The members of the
Audit Committee are Lloyd F. Darlington, James D. Dixon and Kerry McLellan.
Assuming that the shareholders approve the election of the proposed new
independent directors, the Board of Directors intends to reconstitute the
Audit Committee in a manner that will comply with: (i) NASDAQ's interim audit
committee listing requirement outlined above; and (ii) the TSE Corporate
Governance Guidelines, which are described in the "Corporate Governance"
section herein. See the "Corporate Governance" section herein for a more
detailed discussion of the Audit Committee, as well as a discussion of the
Board of Directors' other committees.
The following table sets forth the name of each person proposed to
be nominated for election to the Board of Directors at the Meeting, all
positions and offices of the Corporation currently held by him or her, his or
her principal occupation or employment at present (and for the five preceding
years for directors not previously elected by the Shareholders at a
shareholders' meeting) and the number of Common Shares beneficially owned, or
over which control or direction is exercised, as of April 7, 2000:
<PAGE>
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<TABLE>
<CAPTION> COMMON SHARES
BENEFICIALLY OWNED
OR OVER WHICH
YEAR CONTROL OR
NAME AND POSITION WITH BECAME DIRECTION IS
CORPORATION PRINCIPAL OCCUPATION DIRECTOR EXERCISED(1)
- - ---------------------------- ----------------------------------------------------- ----------- ---------------------
<S> <C> <C> <C>
GREGORY WOLFOND Chairman and Chief Executive Officer of the 1997 8,000,000 (2)
Chairman and Chief Corporation since April 1998 and September 1997,
Executive Officer respectively. Mr. Wolfond founded Footprint
Software Inc. (a financial services software
company) in 1987. IBM Canada Ltd. purchased
Footprint Software Inc. in May 1995, and Mr.
Wolfond continued to serve as Chief Executive
Officer of Footprint Software Inc. until July 1997,
when he co-founded the Corporation.
CHRISTOPHER ERICKSON President and General Counsel of the Corporation 1998 335,332 (3)
President, General since July 1997 and Secretary since April 1998.
Counsel, Secretary and Mr. Erickson was a corporate/commercial and
Director technology lawyer at Fasken, Campbell, Godfrey (a
Canadian law firm) from 1994 to July 1997 and
President of Cygnus Computer Associates Ltd. (a
software engineering firm) from January 1989 to
July 1997.
ANDRE BOYSEN Chief Technology Officer of the Corporation since 1998 333,332(4)
Chief Technology Officer August 1998. Mr. Boysen was Chief Technology
and Director Officer of Footprint Software Inc. (a financial
services software company) from March 1996 to March
1998 and was Chief Executive Officer of Footprint
Software Inc.'s Asia-Pacific operations between
1994 and 1996.
KERRY McLELLAN Chief Operating Officer of the Corporation since 1999 233,332(5)
Chief Operating Officer June 1999. Dr. McLellan was Executive
and Director Vice-President, Strategy of the Corporation from
August 1998 to May 1999. Since 1995, Dr. McLellan
has also been President of Melansons Waste
Management and of Ready John Inc. (both waste
disposal companies).
LLOYD F. DARLINGTON Chief Technology Officer and General Manager of 1998 -
Director Bank of Montreal (a Canadian chartered bank) since
May 1996. Mr. Darlington is also a director of
Cebra Inc. (an electronic commerce subsidiary,
wholly-owned by Bank of Montreal) and of Symcor
Inc. (a payment processing corporation). Mr.
Darlington was Executive Vice-President, Operations
of Bank of Montreal from 1989 to 1996.
MARTIN A. STEIN President of Sonoma Mountain Ventures L.L.C. (a 1998 70,000(6)
Director consulting company he founded) since October 1998,
as well as a partner in RSA Ventures (a consulting
and venture capital company) since 1999. Mr. Stein
was Vice-Chairman of Technology and Operations of
Bank of America Corporation from June 1990 to
October 1998.
</TABLE>
<PAGE>
-10-
<TABLE>
<CAPTION> COMMON SHARES
BENEFICIALLY OWNED
OR OVER WHICH
YEAR CONTROL OR
NAME AND POSITION WITH BECAME DIRECTION IS
CORPORATION PRINCIPAL OCCUPATION DIRECTOR EXERCISED(1)
- - ---------------------------- ----------------------------------------------------- ----------- ---------------------
<S> <C> <C> <C>
JAMES D. DIXON Executive of BankofAmerica.com, a subsidiary of 1999 5,000
Director Bank of America, since February 2000. Mr. Dixon
was Group Executive of Bank of America Technology
and Operations, a subsidiary of Bank of America,
from September 1998 to February 2000. Mr. Dixon was
President of NationsBank Services, Inc., a
subsidiary of NationsBank Corporation, from 1992
until the 1998 merger of NationsBank Corporation
and Bank of America Corporation.
HARRI VATANEN Founder and President of Sonera SmartTrust (a 1999 -
Director wireless e-commerce security company) and Senior
Vice President of Sonera Corporation (a
telecommunications company), formerly Telecom
Finland Ltd. Mr. Vatanen has worked in the
telecommunications industry for more than 15 years.
Prior to joining Sonera, Mr. Vatanen worked at a
communications services management consulting
company. Prior to working as a consultant, he
worked for Nokia Datacommunications in the product
development and international sales and marketing
departments as a development manager of future
projects.
ALAN YOUNG Vice President, Access Devices and Distribution 1999 3,846
Director Technologies for e-Citi, a division of Citigroup
Inc. (a diversified holding company), since March
1998. Mr. Young was Vice-President of Engineering
of Viacom Inc. (an international entertainment and
media company) from March 1995 to March 1998.
Prior to March 1995, Mr. Young was an executive of
MTV Networks (a multimedia corporation).
HOLGER KLUGE Mr. Kluge was President, Personal and Commercial N/A -
Proposed Nominee Bank of CIBC from 1990 until he retired in May
1999. Mr. Kluge was named President, Individual
Bank of CIBC in 1990 and was responsible for retail
and private banking world-wide. CIBC's Individual
Bank was renamed Personal and Commercial Bank in
1993 to more accurately reflect the unit's
responsibilities. Mr. Kluge's current directorships
include Husky Oil Ltd. (an oil and gas company),
Vlinx.com (an e-commerce venture), Tom.com limited
(a start-up internet portal for China) and Prologic
Corp. (a developer of software solutions for the
global financial services industry).
HEATHER REISMAN President, Chair and Chief Executive Officer of N/A -
Proposed Nominee Indigo Books and Music, Inc. since 1996. Prior to
starting Indigo Books and Music, Inc. in 1996, Ms.
Reisman was President of Cott Corporation (a soft
drink manufacturer). Ms. Reisman is currently a
member of the board of Rogers Cable Inc. (an
entertainment, information and communication
services company), Chair of the board of Vincor
International Inc. (an international wine company)
and an Officer and member of the Executive
Committee of Mount Sinai Hospital.
</TABLE>
<PAGE>
-11-
<TABLE>
<CAPTION> COMMON SHARES
BENEFICIALLY OWNED
OR OVER WHICH
YEAR CONTROL OR
NAME AND POSITION WITH BECAME DIRECTION IS
CORPORATION PRINCIPAL OCCUPATION DIRECTOR EXERCISED(1)
- - ---------------------------- ----------------------------------------------------- ----------- ---------------------
<S> <C> <C> <C>
BARRY REITER Corporate/commercial and technology lawyer at Torys N/A -
Proposed Nominee (an international law firm) since 1982, and he is
Chairman of the Torys Technology Group. Mr. Reiter
is also currently Chairman of Algorithmics Inc. and
Battery Technologies Inc., and a director of
Alliance Atlantis Communications Inc., Efos Inc.,
Lorus Therapeutics Inc. and Telepanel Systems Inc.
-------------------
</TABLE>
Notes:
1. The information as to Common Shares beneficially owned or controlled, not
being within the knowledge of the Corporation, has been furnished by the
proposed nominees.
2. See "Voting Shares and Principal Shareholders Thereof" for details of
Common Shares owned or controlled by entities related to Mr. Wolfond.
3. Includes 333,332 Common Shares issuable upon the exercise of options that
are presently vested or that vest prior to June 7, 2000.
4. Includes 333,332 Common Shares issuable upon the exercise of options that
are presently vested or that vest prior to June 7, 2000.
5. Includes 173,332 Common Shares issuable upon the exercise of options that
are presently vested or that vest prior to June 7, 2000.
6. Includes 68,000 Common Shares issuable upon the exercise of options that
are presently vested or that vest prior to June 7, 2000.
As at April 7, 2000, the directors and officers of the Corporation,
as a group, together with members of their respective families and entities
related to them, directly or indirectly, owned of record or beneficially, or
exercise control or direction over, an aggregate of 8,141,846 Common Shares
(representing approximately 22.3% of the outstanding Common Shares) and
options for the purchase of a total of 917,996 Common Shares are presently
vested, or will vest prior to June 7, 2000, in the directors and officers. In
addition, as at April 7, 2000, the directors and officers of the Corporation
held stock options in respect of an aggregate of 783,004 Common Shares, which
have not yet vested. If all such securities were exercised, such persons
would own an additional 1,701,000 Common Shares and would hold, on a
when-issued basis, 25.8% of the outstanding shares.
<PAGE>
-12-
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Compensation Committee of the Corporation is responsible for
reviewing and making recommendations to the Board of Directors concerning the
terms of the compensation packages provided to senior executive officers,
including salary, bonus and awards under any new compensation plans that the
Corporation may adopt in the future. The Compensation Committee also
supervises the Stock Option Committee's administration of the Corporation's
new "2000 Stock Option Plan" and establishes guidelines for the Stock Option
Committee with respect to the granting of options to employees and
consultants of the Corporation and its affiliates.
The members of the Compensation Committee are Gregory Wolfond
(Chairman and Chief Executive Officer), Martin A. Stein (Director), Alan
Young (Director), Christopher Erickson (President, General Counsel, Secretary
and Director) and Kerry McLellan (Chief Operating Officer and Director). If
the Shareholders approve the election of Holger Kluge, Heather Reisman and
Barry Reiter to the Board of Directors, the Board of Directors intends to
reconstitute the Compensation Committee in a manner that will comply with the
TSE Corporate Governance Guidelines, which are described in the "Corporate
Governance" section herein. See the "Corporate Governance" section for a more
detailed discussion of the Compensation Committee, as well as a discussion of
the Board of Directors' other Committees.
REPORT ON EXECUTIVE COMPENSATION
The executive compensation policies of the Corporation have been
designed to attract, motivate and retain the key talent necessary for the
Corporation to be successful in the highly competitive business environment
in which it operates. Such policies have been designed to recognize and
reward individual performance and provide compensation levels which are
competitive with Canadian and U.S. companies of comparable size and type and
which face similar operating and financial issues.
The Compensation Committee's policy is to offer the Corporation's
executive officers competitive compensation opportunities based on overall
Corporation performance, individual contribution to the financial success of
the Corporation, and their personal performance in helping to build the
Corporation and position it for long term growth. In making its
determinations, the Compensation Committee also considers reports from
independent professional compensation advisors. The compensation for the
Chief Executive Officer and certain other executive officers of the
Corporation is decided in accordance with these compensation policies and
with consideration to the employment agreements entered into by them with the
Corporation.
The key components of each executive officer's compensation package
are: (i) base salary; (ii) short-term compensation incentives; and (iii)
long-term compensation incentives.
BASE SALARY
Executives' salaries and benefits are intended to approximate
median competitive levels for similar positions in comparable Canadian and
U.S. software companies. Consideration is given by the Compensation Committee
to the particular executive officer's experience, personal performance,
leadership, contribution to the Corporation generally and achievement of
annual specific objectives.
<PAGE>
-13-
SHORT-TERM COMPENSATION INCENTIVES
Certain executive officers receive a portion of their annual
compensation in the form of bonuses. Bonuses are subject to achieving certain
annual operating targets and are subject to the executive's overall
contribution and performance.
LONG-TERM COMPENSATION INCENTIVES
The Corporation's long-term incentive compensation for executive
officers is provided through grants of stock options through the
Corporation's stock option plans. See "Stock Options" below for details
regarding the various plans. The Corporation's stock option plans are
administered by the Stock Option Committee of the Board of Directors of the
Corporation, subject to option grant guidelines being developed by the
Compensation Committee. The number of stock options granted is based on each
individual's salary range and responsibility, and takes into account the
number and terms of stock options that have been previously granted to that
individual.
The Chief Executive Officer, while eligible, has, to date, not been
granted stock options, in view of the fact that he has a significant
financial interest in the Corporation. See "Voting Shares and Principal
Holders Thereof" for details regarding the Chief Executive Officer's
shareholdings. Mr. Erickson, Mr. McLellan and Mr. Boysen were each granted a
significant number of stock options during the Corporation's formative
stages. To date, the Compensation Committee has not felt that additional
option grants are required for these executive officers, however this
decision may be revisited in the future. Ms. Basian joined the Corporation in
1999 and was granted options upon joining the Corporation and periodically
thereafter in view of her substantial contribution to the Corporation.
Senior executives who have joined the Corporation after the five
named executives referred to in the Summary Compensation Table below have
each received meaningful option grants, in accordance with option grant
criteria being developed by the Compensation Committee with the advice of
employment benefit consultants.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Gregory Wolfond was appointed Chief Executive Officer by the Board
of Directors in September 1997. His salary was determined based on
negotiations with the Board of Directors in August 1999. His future
compensation will take the form of base salary, bonuses and stock options.
Any future bonus payments will depend upon job performance, the financial
performance of the Corporation, the duties and responsibilities of the Chief
Executive Officer, and external competitive pay practices of other Canadian
and U.S. companies of comparable size and type. The comparison of the Chief
Executive Officer's compensation to similar Canadian and U.S. companies
involves a number of factors, including the relative size of the companies,
their financial performance and share price, the duties of the Chief
Executive Officer and other circumstances the Compensation Committee
considers relevant in making its determination based on advice commissioned
from time to time from employment benefits consultants.
This report is presented by the members of the Compensation
Committee, namely:
Gregory Wolfond
Christopher Erickson
Martin A. Stein
Alan Young
Kerry McLellan
<PAGE>
-14-
EXECUTIVE COMPENSATION
The compensation of the other executive officers of the Corporation
was determined at the time of the initial public offering of the Corporation.
Other than salaries set by employment agreements, salaries are set by the
Compensation Committee based on the recommendation of the Chief Executive
Officer. In making its determinations, the Committee considers reports from
independent professional compensation advisors, the executive's experience
and established or expected performance. Benefits and other compensation are
also provided to executives.
STOCK OPTION COMMITTEE
The Corporation currently has a Canadian Stock Option Plan, a U.S.
Stock Option Plan, and a new 2000 Stock Option Plan (the "2000 Plan"), each
of which is intended to attract, retain and motivate key employees, officers,
directors and consultants.
The Stock Option Committee administers the Corporation's Canadian
Stock Option Plan and its U.S. Stock Option Plan (which plans govern stock
options granted prior to the Corporation's initial public offering and are
collectively referred to as the "Pre-IPO Plans"), determines which
individuals receive grants of awards under the 2000 Plan, and the terms of
these grants. Upon completion of the initial public offering, no further
grants were made, nor will any further grants be made, under the Pre-IPO
Plans. The Stock Option Committee has, since the completion of the initial
public offering, begun to administer the 2000 Plan, subject to guidelines
being determined by the Compensation Committee. The members of the Stock
Option Committee are Christopher Erickson (President, General Counsel,
Secretary and Director) and Andre Boysen (Chief Technology Officer and
Director).
STOCK OPTION PLANS
The Board of Directors has reserved an aggregate of 3,200,000
Common Shares for issuance under the Pre-IPO Plans and an additional
2,000,000 Common Shares for issuance under the 2000 Plan. As of February 2,
2000, being the date of closing of the Corporation's initial public offering,
options to purchase 2,998,070 Common Shares were outstanding under the
Pre-IPO Plans. In addition, options in respect of 185,332 Common Shares had
been exercised during January 2000. As of April 24, 2000, options in respect
of 393,800 Common Shares have been granted under the 2000 Plan, none of which
have yet vested.
CANADIAN STOCK OPTION PLAN. This plan was adopted in September 1997
and provides for the grant of options to employees, officers, directors,
consultants and advisors of the Corporation and its affiliates. All options
granted under the plan have a maximum term of 10 years and have an exercise
price per share of no less than the fair market value of the Common Shares on
the date of the option grant, as determined by the Board of Directors or a
duly authorized committee on such date. If an optionee's employment,
directorship or consulting relationship with the Corporation is terminated
without cause, the vested portion of any grant will remain exercisable until
the expiration date of the stock option. In the event of termination for
cause, the vested portion of any grant will remain exercisable for a period
of 30 days after the date of termination. Unvested options will expire on
termination unless the options would have vested within six months or within
the required statutory notice period following a termination without cause,
whichever is earlier, or within one year if termination is due to death or
disability. If a change of control of the Corporation occurs, all options
become immediately vested and exercisable. If an optionee under the Canadian
Stock Option Plan ceases to be an employee or consultant of the Corporation
or its affiliates, the Corporation is entitled to exercise its call right to
repurchase all options beneficially owned by the optionee.
<PAGE>
-15-
U.S. STOCK OPTION PLAN. This plan was adopted in October 1999 and
provides for the grant of options and restricted shares to employees,
officers, directors and consultants of the Corporation and its affiliates.
The plan provides for the grant of both incentive stock options and
non-qualified stock options. The Corporation has not granted any incentive
stock options nor issued any restricted shares under this plan, nor will it
in the future, given the implementation of the 2000 Plan.
Non-qualified stock options granted under the plan have a maximum
term of 10 years and an exercise price of no less than 85% of the fair market
value of the Common Shares on the date of the grant, as determined by the
Board of Directors or a duly authorized committee on such date, or 110% of
the fair market value for those optionees who own Common Shares representing
more than 10% of the aggregate voting power of the Corporation's outstanding
securities. The rights of an optionee upon the termination of his or her
employment, directorship or consulting relationship with the Corporation and
upon a change of control of the Corporation are identical to those rights
discussed in the Canadian Stock Option Plan above. The Corporation is
entitled to exercise its call right to repurchase all options beneficially
owed by an optionee under the U.S. Option Plan should an optionee cease to be
an employee or consultant of the Corporation or its affiliates.
2000 STOCK OPTION PLAN. In December 1999, the Corporation approved
the new 2000 Plan, which was implemented upon completion of the initial
public offering of the Corporation. Options granted under the existing plans
will be unaffected by the adoption of the 2000 Plan. However, no additional
options will be granted under the Pre-IPO Plans. The Stock Option Committee
will administer the 2000 Plan, subject to certain guidelines being determined
by the Compensation Committee. These guidelines are expected to set forth,
among other things, aggregate monthly grant limits under the 2000 Plan, and
the number of options that may be granted to employees of particular
seniority levels. Any grants outside of these guidelines will require the
prior approval or subsequent ratification of the Compensation Committee. The
2000 Plan provides for the grant of options to employees, officers, directors
and consultants of the Corporation and its affiliates worldwide. Both
incentive stock options and non-qualified stock options will be available to
U.S. residents. Options held by any person under the 2000 Plan together with
any other options (or other share compensation arrangements) granted to that
person may not, at any time, exceed 5% of the aggregate number of Common
Shares outstanding from time to time. The options granted under the 2000 Plan
will have a maximum term of 10 years and an exercise price of no less than
the fair market value of the Common Shares on the date of the grant, as
determined by the Board of Directors or a duly authorized committee on such
date, or 110% of fair market value in the case of an incentive stock option
granted to an employee who owns Common Shares having more than 10% of the
aggregate voting power of the Corporation's outstanding securities. If a
change of control of the Corporation occurs, all options granted under the
2000 Plan become automatically vested and exercisable in full.
Subject to the requirements of the TSE and/or applicable securities
regulators, the Board of Directors, the Stock Option Committee, or any other
committee established by the Board of Directors to administer the 2000 Plan,
may determine the provisions relating to the expiry of options under
termination of employment, directorship or consulting relationship with the
Corporation. Such provisions are contained in the written option agreement
between the Corporation and the optionee.
SUMMARY COMPENSATION TABLE
The following table sets forth the remuneration paid to the Chief
Executive Officer and to the four highest paid executive officers of the
Corporation whose total salary and bonus exceeded Cdn. $100,000
(approximately $65,000) for the year ended December 31, 1999 (the "Named
Executive Officers"). As indicated above, unless otherwise indicated, all
monetary figures in this Management Information Circular are stated in U.S.
dollars, being the functional currency of the Corporation. In
<PAGE>
-16-
addition, all share figures are adjusted to reflect the two-for-one share
split effected on December 30, 1999.
<PAGE>
-17-
<TABLE>
<CAPTION>
- - --------------------- ------- -------------------------------- -------------------------------------- --------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- --------------------------------------
AWARDS PAYOUTS
--------------------------------------
SECURITIES RESTRICTED ALL OTHER
OTHER UNDER SHARES OR COMPENSATION
NAME AND PRINCIPAL ANNUAL OPTIONS RESTRICTED LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION GRANTED SHARE UNITS PAYOUTS COMPENSATION
($) ($) ($) (#) ($) ($) ($)
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gregory Wolfond, 1999 218,434 126,768 1,162 - - - 2,467(Cdn.)
Chairman and Chief
Executive Officer
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
Christopher 1999 116,280 - - - - - 2,393(Cdn.)
Erickson, President
and General Counsel
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
Andre Boysen, Chief 1999 116,280 - - - - - 2,013(Cdn.)
Technology Officer
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
Kerry McLellan, 1999 181,863 - 30,238 - - - 2,299(Cdn.)
Chief Operating
Officer
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
Karen Basian, Chief 1999 100,3651 - - 200,000 - - 1,603(Cdn.)
Financial Officer
- - --------------------- ------- ---------- --------- ----------- ------------ ------------- ----------- --------------
</TABLE>
Notes:
1. This figure represents the total salary earned by Ms. Basian in 1999. Ms.
Basian commenced her employment as Chief Financial Officer of the
Corporation on February 22, 1999. Ms. Basian's annual salary was Cdn.
$178,000 in 1999.
For the year ended December 31, 1999, the Corporation's cash
compensation payments to all of its officers and directors for services rendered
in these capacities was approximately $1,000,000.
SHARE OPTION PLANS
OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table sets forth the Common Share purchase options
granted to each of the Named Executive Officers under the Corporation's Canadian
Stock Option Plan and U.S. Stock Option Plan between January 1, 1999 and
December 31, 1999.
<PAGE>
-18-
<TABLE>
<CAPTION>
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
MARKET VALUE OF
% OF TOTAL SECURITIES
SECURITIES UNDER OPTIONS GRANTED EXERCISE OR BASE UNDERLYING OPTIONS
OPTIONS GRANTED TO EMPLOYEES IN PRICE ON THE DATE OF
NAME (#) FINANCIAL YEAR ($/SECURITY) GRANT ($/SECURITY) EXPIRATION DATE
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
<S> <C> <C> <C> <C> <C>
Gregory Wolfond - - - - -
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
Christopher Erickson - - - - -
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
Andre Boysen - - - - -
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
Kerry McLellan - - - - -
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
Karen Basian 60,000 7.1% 1.71 102,600 February 2009
20,000 2.4% 3.75 75,000 October 2009
120,000 14.2% 10.00 1,200,000 December 2009
- - --------------------- ------------------- ------------------- ------------------ --------------------- -----------------
</TABLE>
DIRECTORS' AND OFFICERS' STOCK OPTIONS
As at April 7, 2000, the Corporation's directors and officers held, as
a group, options to purchase an aggregate of 1,701,000 Common Shares exercisable
at prices ranging from Cdn. $0.50 to Cdn. $287.92, expiring at dates ranging
from September 2007 to March 2010.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
The following table sets out the aggregate number of outstanding
options to purchase Common Shares held by each of the Named Executive Officers
as at December 31, 1999, together with the value of such options at the end of
the fiscal period. The aggregate number of shares purchasable pursuant to
options that were vested as at December 31, 1999 for each of the Named Executive
Officers is set out in the table.
Since there was no public market for the Common Shares of the
Corporation as of December 31, 1999, the value of an "in-the-money" option
represents the difference between the aggregate estimated fair market value of
the Common Shares issuable upon exercise of the option and the aggregate
exercise price of the option. The estimated fair market value of a Common Share
as of December 31, 1999, as determined by the Board of Directors, was $10.
<TABLE>
<CAPTION>
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FINANCIAL IN-THE-MONEY OPTIONS
YEAR-END AT FINANCIAL YEAR-END
SECURITIES ACQUIRED AGGREGATE VALUE (#) ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Gregory Wolfond - - - -
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Christopher Erickson - - 333,332/66,668 3,219,987/644,013
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Andre Boysen - - 333,332/66,668 3,219,987/644,013
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Kerry McLellan - - 233,332/166,668 2,253,987/1,610,013
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Karen Basian - - 40,000/140,000 125,000/497,400
- - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
<PAGE>
-19-
EMPLOYMENT CONTRACTS
Each of the Corporation's Named Executive Officers has an
employment agreement with the Corporation. Each employment agreement provides
the executive officer with a compensation package which includes salary,
benefits and options to purchase Common Shares pursuant to the Corporation's
stock option plans. The Corporation retains all proprietary and intellectual
property rights in everything created, developed or conceived of by any of
its employees while employed with the Corporation or its affiliates. So long
as any employee, including executive officers, is employed with the
Corporation, they are typically bound by non-competition and non-solicitation
covenants during their term of employment and for one year thereafter.
COMPENSATION OF DIRECTORS
The Corporation does not presently pay any cash compensation to
directors for serving on the Board of Directors, but it does reimburse
directors for out-of-pocket expenses for attending board and committee
meetings. Of the Corporation's directors who are not also executive officers,
only Mr. Stein received stock options for his participation on the Board of
Directors. In this capacity, Mr. Stein was granted options to acquire 60,000
Common Shares exercisable for $1.71 per share in September 1998. In addition,
in August 1999, Mr. Stein entered into a consulting arrangement with the
Corporation under which he received an option pursuant to the Corporation's
Canadian Stock Option Plan to purchase 48,000 Common Shares at $3.75 per
share. See "Interests of Insiders in Material Transactions" for details
regarding the consulting arrangement between the Corporation and Mr. Stein.
DIRECTORS AND OFFICERS INSURANCE
The Corporation has purchased and maintains a policy of insurance
for the benefit of the directors and officers of the Corporation and its
affiliates, as permitted by the Act. Such policy insures the directors and
officers against certain liabilities incurred by them in their capacities as
directors and officers of the Corporation, or in their capacities as
directors and officers of other corporations where they have acted in that
capacity at the Corporation's request, except where such liability relates to
the failure by the director or officer to act honestly, in good faith and
with a view to the best interests of the Corporation or such other
corporation, as the case may be.
The policy obtained by the Corporation provides for $30,000,000 of
coverage per loss and in the annual aggregate, for which the Corporation pays
an annual premium of $450,000, subject to a deductible of $250,000 per claim.
INDEBTEDNESS OF DIRECTORS, OFFICERS AND OTHERS
The directors and senior officers of the Corporation were not
indebted to the Corporation or to any of the subsidiaries of the Corporation
at any time since the beginning of the last completed fiscal year of the
Corporation.
<PAGE>
-20-
CORPORATE GOVERNANCE
The TSE has adopted 14 guidelines for effective corporate
governance (the "Guidelines"). The Guidelines address matters such as the
constitution and independence of corporate boards, the functions to be
performed by boards and their committees and the effectiveness and evaluation
of board members. Companies whose securities are listed on the TSE are
required to annually disclose how their governance practices conform or
depart from the Guidelines, but conforming with the Guidelines is not itself
a requirement of listing.
To maintain high standards of corporate governance in a rapidly
changing environment, the Corporation's governance processes are subject to
ongoing review and assessment by the Corporate Governance Committee of the
Board of Directors and have been benchmarked relative to the Guidelines, as
required by the TSE.
The Corporate Governance Committee consists of five directors, the
majority of which are outside directors. The Committee's mandate is to
promote board effectiveness. In addition, the Board and management believe
that good corporate governance requires a company culture that supports the
maintenance of sound ethics, integrity, judgment and values throughout the
organization. In this regard, in March 2000, the Corporation retained the
services of a corporate governance consultant, with recognised expertise, to
assist the Board of Directors in developing governance processes and
procedures to enhance its ability to effectively fulfill its governance and
oversight responsibilities. The Corporation also actively consults its
principal external counsel for advice on those matters.
The following table indicates how the Corporation's system of
corporate governance aligns with the Guidelines:
<TABLE>
<CAPTION>
TSE CORPORATE
GOVERNANCE GUIDELINE COMMENTS
- - --------------------------------------- ---------------------------------------------------------------------------
<S> <C> <C>
1. The Board of Directors should
explicitly assume responsibility
for stewardship of the Corporation,
and specifically assume
responsibility for:
(a) Adoption of a strategic The Corporation aligns with this Guideline. A formal strategic planning
planning process process has been initiated at the request of the Board of Directors. The
Corporate Governance Committee and the Board of Directors are in the
course of assisting the CEO and the senior management team in the
development of the Corporation's strategic operational, acquisition
and product development plans. The Board of Directors, either as a whole
or through various committees, also holds meetings from time to time
which focus on strategic planning matters.
(b) Identification of principal The Corporation aligns with this Guideline. The Audit Committee and the
risks, and implementing risk Board of Directors have specifically identified the Corporation's
management systems principal operational and strategic risks and are working with management
in the development of appropriate risk management systems. The Audit
Committee has been delegated the responsibility to work with
management and external professional advisers to establish and implement a
formal risk management process.
(c) Succession planning and The Corporation aligns with this Guideline, as its Compensation Committee
monitoring senior reviews and reports to the Board of Directors on succession planning
management matters at least annually. The Board of Directors also receives
operational reports at least quarterly to ensure accountability of
senior management and is working with
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senior management to ensure that succession planning and human resources
strategies are finalized and implemented.
(d) Communications policy The Corporation aligns with this Guideline. The Board of Directors has
verified that procedures are in place to ensure effective communication
between the Corporation and its stakeholders and the public. The
Corporation promptly provides full and plain disclosure of all material
information, as required by law. In addition, all material press releases
and most others are reviewed by outside counsel. The Corporation has a
website on which it posts all of its press releases, SEC filings, SEDAR
filings and other meaningful information. The Corporation's Investor
Relations Department has also implemented procedures to enhance effective
communication with its stakeholders and the public. For example, the
Investor Relations Department has instituted a practice pursuant to which
it maintains a distribution list of persons who have requested
information about the Corporation and delivers to those persons all
material press releases and financial information either by facsimile or
by e-mail. The Corporation also intends to hold quarterly meetings with
analysts and institutional investors by telephone conference call, which
will be open to the financial press as well as the public (through
webcasting). Recordings of the meetings will be archived on the
Corporation's website.
(e) Integrity of internal The Corporation aligns with the Guideline. The Board of Directors has,
control and management through the appointment of the Audit Committee, put in place an effective
information systems system for monitoring the implementation of corporate strategies. The
Audit Committee is responsible for, among other things, reviewing and
advising the Board of Directors on implementation of corporate strategy
in the operational, acquisition and product development areas, as well as
the development and implementation of an effective risk management system.
The external auditors report to the Audit Committee, when requested, on
matters relating to internal control.
2. A majority of directors should The Corporation aligns with this Guideline, as a majority of the
be "unrelated" (independent of Corporation's directors are independent from management and free from
management and free from any interest, business or other relationship that could, or could
conflicting interest) reasonably be perceived to, materially interfere with the director's
ability to act in the best interests of the Corporation.
The Corporation does not have a "significant shareholder". The
Guidelines define a "significant shareholder" as a shareholder with
the ability to exercise a majority of the votes for the election of the
Board of Directors.
3. Disclose, for each director, The Corporation aligns with this Guideline. Mr. Wolfond (Chairman and
whether he or she is related, Chief Executive Officer), Mr. Erickson (President, General Counsel and
and how that conclusion was Secretary), Mr. Boysen (Chief Technology Officer) and Dr. McLellan
reached (Chief Operating Officer) are related.
Mr. Darlington (Chief Technology Officer of Bank of Montreal) is
unrelated. The agreements between Bank of Montreal and the Corporation do
not interfere with Mr. Darlington's ability to act in the best interests
of the Corporation.
Mr. Stein is unrelated. The consulting agreement the Corporation has
entered into with Mr. Stein does not interfere with his ability to act in
the best interests of the Corporation.
Mr. Dixon (Executive of BankofAmerica.com, a subsidiary of Bank of
America Corporation) is unrelated. The agreements between Bank of
America and the
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Corporation do not interfere with Mr. Dixon's ability to act in the best
interests of the Corporation.
Mr. Vatanen (President of Sonera SmartTrust and Senior Vice-President of
Sonera Corporation) is unrelated. The agreements and anticipated
agreements between Sonera SmartTrust and the Corporation do not and will
not interfere with Mr. Vatanen's ability to act in the best interests of
the Corporation.
Mr. Young (Vice-President, Access Devices and Distribution Technologies
for e-Citi, a division of Citigroup Inc.) is unrelated. The agreements
and anticipated agreements between Citigroup Inc., its affiliates and the
Corporation do not and will not interfere with Mr. Young's ability to act
in the best interests of the Corporation.
4. (a) Appoint a committee of The Corporation aligns with this Guideline, as the Corporate Governance
directors responsible for Committee has the mandate to:
proposing to the full Board
of Directors new nominees - annually recommend candidates for the Board of Directors;
for election to the board and
for assessing directors - review credentials of nominees for election;
on an ongoing basis
- recommend candidates for filing vacancies on the Board of Directors;
and
- ensure qualifications are maintained.
The Corporate Governance Committee, in conjunction with external
advisors, is developing a process for the assessment of the members of
the Board of Directors. The Corporate Governance Committee reviewed the
credentials of Mr. Kluge, Ms. Reisman and Mr. Reiter, the three new
proposed nominees who, if elected to the Board of Directors, will satisfy
the TSE's and NASDAQ's independent director requirements.
The members of the Corporate Governance Committee are Mr. Erickson,
Dr. McLellan, Mr. Darlington, Mr. Stein and Mr. Young.
(b) Is this nominating committee The Corporation is not currently in alignment with this Guideline, as the
composed exclusively of board committees are not composed solely of outside unrelated directors.
outside (non-management) The non-management members of the Corporation's Board of Directors (with
directors, a majority of the exception of Mr. Stein), being nominees of the Corporation's
whom are unrelated strategic partners, are (with the exception of Mr. Darlington)
non-residents of Canada. To comply with the requirement of the Business
Corporations Act (Ontario) that a majority of the Board of Directors
and of each committee of the Board of Directors be Canadian residents, the
Corporation had, prior to its initial public offering, appointed several
members of its senior management team to the Board of Directors, each of
whom is a Canadian resident. Assuming that the shareholders approve the
election to the Board of Directors of Mr. Kluge, Ms. Reisman and Mr.
Reiter, the Board of Directors intends to reconstitute the Corporate
Governance Committee shortly after the Meeting in a manner which will
comply with the Guidelines.
5. Implement a process for The Corporation aligns with this Guideline, as its Corporate Governance
assessing the effectiveness of Committee is mandated to monitor the quality of the relationship between
the Board of Directors, its management and the Board of Directors and to assess the effectiveness of
committees and individual the board directors, its committees and individual directors, and
directors recommend improvements. The Corporate Governance Committee, in
conjunction with external advisors, is developing a process for the
assessment of the members of the Board of Directors.
6. Provide an orientation and The Corporation aligns with this Guideline, as it has retained a
corporate
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education program for new governance consultant to assist it in developing and implementing
directors orientation materials and procedures for new directors.
Reports and orientation materials relating to the Corporation's
business and affairs are provided to new directors, including the proposed
nominees for election to the Board of Directors at the Meeting.
7. Examine board size with a view The Corporation aligns with this Guideline. The Board of Directors has
to determining the impact of the considered this issue and is of the view that its proposed increased size
number of directors upon board and composition are well suited to the circumstances of the Corporation
effectiveness; where and allows for the efficient functioning of the Board of Directors as a
appropriate, undertake a program decision-making body and the appropriate staffing of committees to which
to reduce the number of active mandates have been and will be delegated.
directors to a number that will
facilitate more effective
decision making.
8. The Board of Directors should The Corporation aligns with this Guideline, as its Compensation Committee
review compensation of directors is mandated to review and recommend to the Board of Directors proposals
in light of risks and for the remuneration of directors. The Committee considers time
responsibilities involved in commitment, comparative fees and responsibilities in determining
being a director remuneration. The Corporation's current policy is not to provide
remuneration to management members of the Board of Directors or to
directors who are affiliated with its major shareholders. Mr. Stein is
currently the only director who is remunerated for his services to the
Board of Directors. Upon joining the Board of Directors in 1998, Mr.
Stein received an option to purchase 60,000 Common Shares, which vests
over three years. It is the Corporation's intention to develop a policy
for remuneration of independent directors, which policy will be
implemented in conjunction with the proposed election of Mr. Kluge, Ms.
Reisman and Mr. Reiter to the Board of Directors.
The members of the Compensation Committee are Mr. Wolfond, Mr.
Erickson, Dr. McLellan, Mr. Stein and Mr. Young.
9. Committees of the Board of As indicated in item 4(b) above, and for the reasons stated, the
Directors should generally be Corporation is not currently in alignment with this Guideline, as the
composed of outside board committees are not composed solely of outside unrelated directors.
(non-management) directors, a Assuming that the shareholders approve the election to the Board of
majority of whom are unrelated Directors of Mr. Kluge, Ms. Reisman and Mr. Reiter, the Board of
Directors intends to reconstitute the committees that are not in compliance
with the Guidelines shortly after the Meeting in a manner which will comply
with both the Guidelines and NASDAQ's independence requirements.
In addition to the Corporate Governance Committee, the
Compensation Committee and the Audit Committee (which are addressed in
different sections of this table), the Corporation also has a Stock
Option Committee. Subject to guidelines being determined by the
Compensation Committee, the Stock Option Committee is mandated to
administer the Corporation's Canadian Stock Option Plan and its U.S. Stock
Option Plan. Upon completion of the Corporation's initial public
offering, no further grants of options have been made under either
of these plans and the Stock Option Committee began to administer the
Corporation's "2000 Stock Option Plan", subject to the guidelines
being determined by the Compensation Committee. The members of the Stock
Option Committee are Christopher Erickson and Andre Boysen. The Board
of Directors is satisfied that the Stock Option Committee can properly
function in its current composition, given that its authority is subject
to guidelines. In addition, this Committee meets weekly to authorize
stock option grants for new hires and therefore it was not considered
appropriate to appoint outside directors to this committee due to
the ongoing time commitment required.
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10. The Board of Directors should The Corporation aligns with this Guideline, as its Corporate Governance
expressly assume responsibility Committee is generally mandated to be responsible for developing policies
for, or assign to a committee and implementing procedures related to the Board of Directors' governance
the general responsibility for, of the Corporation. Included in its mandate is responsibility for:
the Corporation's approach to developing and monitoring the Corporation's approach to corporate
corporate governance issues governance issues, establishing procedures for the identification of new
nominees to the Board of Directors, developing and implementing
orientation procedures for new directors and assessing the
effectiveness of the Board of Directors and its committees.
11. (a) Define limits to
management's
responsibilities by
developing mandates for:
(i) the Board of Directors The Corporation aligns with this Guideline. The Board of Directors is in
the process of formalizing its governance mandate through the adoption of
a written mandate that defines its stewardship responsibilities. The
Board of Directors' principal responsibilities are: to approve corporate
strategies and goals; to ensure that effective communications systems are
in place between the Corporation, its stakeholders, and the public; to
supervise and evaluate management, including the establishment of
executive limitations; to provide oversight of the conduct of the
business; and to monitor organizational performance against those goals
and executive limitations. This mandate is to be carried out in a manner
that protects the value of the Corporation and provides ongoing benefit
to the shareholders. In addition, the Board of Directors is in the
process of formally articulating executive limitations regarding the
conduct of the business.
In addition, all matters of policy and all actions proposed to be taken
by the Corporation which are not in the ordinary course of its operations
require prior approval of the Board of Directors or of a board committee
to which approval authority has been delegated by the Board of Directors.
In particular, the Board of Directors approves the appointment of all
executive officers, the long term strategic plans and the annual budget
and capital plan.
(ii) the CEO The Corporation aligns with this Guideline. The Board of Directors sets
objectives for the CEO, and reviews performance against those objectives
at least annually. These objectives include the general mandate to
maximize shareholder value and to fulfill the strategic plans of the
Corporation. The CEO is also required to formulate and propose to the
directors the various strategies regarding product marketing, target
markets (geographic and vertical) as well as the strategies regarding the
Corporation's corporate structure and future acquisitions.
(b) The Board of Directors The Corporation aligns with this Guideline, as the CEO's objectives, as
should approve the CEO's noted above, are reviewed by the full Board of Directors on an annual
corporate objectives basis.
12. Establish procedures to enable The Chairman of the Board of Directors, Mr. Wolfond, is a member of the
Board of Directors to management, as he is also the CEO of the Corporation. The Corporation
function independently of nonetheless aligns with this Guideline, as it has instituted structures
management and processes to facilitate the functioning of the Board of Directors
independently of management. The Board of Directors meets
independently of management where needed. The Board of Directors has
assigned certain of its responsibilities to the Corporate
Governance Committee, which ensures that the Board of Directors functions
independently of management, and has established an audit committee
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with a broad mandate (see item 13 below).
13. (a) Establish an audit committee The Corporation aligns with this Guideline, as it has established an
with a specifically defined audit committee which is mandated to: oversee the retention,
mandate independence, performance and compensation of the Corporation's
independent auditors and the establishment and oversight of the
Corporation's systems of internal accounting and auditing control. In
particular, the Audit Committee is responsible for ensuring that there
are adequate internal controls over accounting and financial reporting
systems. The Audit Committee is permitted and encouraged to consult
with management, internal accountants, and the Corporation's
independent auditors on matters related to the annual audit of the
Corporation and the internal controls, published financial
statements, accounting principles and auditing procedures. In accordance
with one of NASDAQ's listing standards, the Corporation has
adopted a formal charter for the Audit Committee that details its
mandate.
The members of the Audit Committee are currently Dr. McLellan, Mr.
Darlington and Mr. Dixon.
(b) All members of the Audit As indicated in items 4(b) and 9 above, and for the reasons stated, the
Committee should be board committees are not composed solely of outside unrelated directors.
non-management directors Assuming that the shareholders approve the election to the Board of
Directors of Mr. Kluge, Ms. Reisman and Mr. Reiter, the Board of
Directors intends to reconstitute the Audit Committee shortly after the
Meeting in a manner which will comply with the Guidelines. NASDAQ's
independent director and audit committee requirements will be satisfied
in two steps, as required by the Corporation's undertaking. See
"Determination of Number of Directors".
14. Implement a system to enable The Corporation aligns with the Guideline. A process has been formalized
individual directors to engage to enable individual directors to engage outside advisers, at the
outside advisers, at the Corporation's expense, with the authorization of the Chairman of the
Corporation's expense Board of Directors. As noted above, the Audit Committee is permitted and
encouraged to speak directly to the Corporation's external auditors on
matters pertaining to its mandate. The Board of Directors has, at the
expense of the Corporation, retained the services of an independent
corporate governance consultant to assist the Corporate Governance
Committee in fulfilling its responsibilities and obligations to
the Corporation and to the Corporation's stakeholders.
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INTERESTS OF INSIDERS IN MATERIAL TRANSACTIONS
No director or officer of the Corporation, nor any securityholder
of record as of the date of this circular who owned, of record or to the
knowledge of the Corporation, more than 10% of the outstanding Common Shares,
or any affiliate or associate thereof, had any material interest, direct or
indirect, in any transaction during the last three fiscal years, or since the
commencement of the Corporation's current financial year, in any proposed
transaction which has materially affected or will materially affect the
Corporation or any of its subsidiaries, other than the following:
BANK OF MONTREAL
In April 1998, the Corporation entered into a share subscription
agreement and a technology licensing agreement with the Bank of Montreal,
which holds 3,428,570 Common Shares. Pursuant to the share subscription
agreement, on April 30, 1998 Bank of Montreal subscribed for 1,000,000 Common
Shares for Cdn. $1,000,000 and received an option to subscribe for 2,428,570
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additional Common Shares for Cdn. $1,000,000 exercisable in the event that
Bank of Montreal: (i) extended its technology licensing agreement with the
Corporation for a second year; and (ii) paid the second year's technology
licensing fee. In October 1998, following Bank of Montreal's extension of the
technology license agreement, Bank of Montreal exercised its option and
subscribed for the 2,428,570 additional Common Shares.
Pursuant to the technology licensing agreement, Bank of Montreal
has agreed, for a term currently expiring (subject to renewal) on February
28, 2001, to license all of the Corporation's technology that is now, or that
during the term of the agreement will be, available to the Corporation's
customers generally. Under this agreement, the Corporation has also agreed to
provide to Bank of Montreal related support and maintenance services. The
license fee for the first two years of the agreement was Cdn. $3,000,000
annually, subject to a refund to the extent that the Corporation failed to
meet certain spending commitments. As at December 31, 1999, all spending
commitments had been satisfied. The license fee for the current year is
$3,000,000. The license is extendable annually at the option of the Bank of
Montreal. With each extension, Bank of Montreal's license will include any
upgrades developed and generally provided to or intended to be generally
provided to the Corporation's customers during that extension period. Bank of
Montreal will retain the right to use all of the technology previously
licensed under the agreement, whether or not the license is extended.
If Bank of Montreal does not extend the general license, it may
specifically license additional technology from the Corporation that is made
generally available to the Corporation's customers. The fee for this
additional technology will be equal to the lowest price at which this
technology is made available to the Corporation's other customers that
process similar volumes of business with the 724 Solutions FSP.
Initially, Bank of Montreal had the right to be the exclusive
Canadian financial institution to which the Corporation would license its
technology. In November 1998, Bank of Montreal agreed to waive this right in
return for a refund of a portion (to a maximum of Cdn. $700,000, annually) of
its annual license fee based on license fees paid to the Corporation by other
Canadian financial institutions, so long as Bank of Montreal's general
license is in effect. Bank of Montreal will not be entitled to receive this
refund if it does not annually extend its general license. As of April 7,
2000 no amounts have been subject to refund under this provision.
BANK OF AMERICA
In June 1999, the Corporation entered into a subscription agreement
with Bank of America and a technology licensing agreement with Bank of
America National Trust & Savings Association, an affiliate of Bank of America
and a predecessor of Bank of America, N.A. Pursuant to the subscription
agreement, on June 1, 1999 Bank of America subscribed for 541,790 Common
Shares at a price of $3.69 per share for gross proceeds of $2,000,000 and
committed to subscribe for 541,790 additional Common Shares for $2,000,000,
which it completed in October 1999. On August 2, 1999, an option and
subscription amending agreement was entered into, which granted Bank of
America the option to acquire a further 2,116,420 Common Shares for an
aggregate subscription price of $8,243,446, which was exercised in October
1999. Bank of America holds 3,200,000 Common Shares.
Pursuant to the license agreement, Bank of America has agreed,
through February 1, 2001, to license all of the Corporation's technology that
is now, or that during the term of the agreement will be, generally available
to the Corporation's customers. The technology licensing agreement provides
for a fixed license fee to be paid by Bank of America to the Corporation over
a twenty-month period commencing on June 1, 1999, in exchange for the
delivery of specific products over the term of the agreement and for a
license of all technology generally available to the Corporation's customers
and developed during the license period. If these products are not delivered,
or do not satisfy acceptance
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testing procedures, a portion of the license fee payable under this
arrangement is refundable. The license is extendable annually at the option
of Bank of America. With each extension, Bank of America's license will
include any upgrades developed and generally provided or intended to be
generally provided to the Corporation's customers during that extension
period. Bank of America will retain the right to use all of the technology
previously licensed under the agreement, whether or not the license is
extended.
If Bank of America does not subscribe for an extension of its
general license in February 2001 or at the end of any renewal term
thereafter, it will have the right, exercisable for four years after it
ceases to subscribe to the general license, to specifically license
additional technology from the Corporation that is made generally available
to the Corporation's customers. For two years after it ceases to subscribe to
the general license, Bank of America will retain the right to reinstate the
license by repaying the aggregate amount of fees that would otherwise have
been paid had the license been renewed each year.
In June 1999, the Corporation also entered into a software
maintenance and support agreement with Bank of America under which Bank of
America pays an annual maintenance fee. The Corporation charges Bank of
America on a time and materials basis in connection with installation,
implementation and modification of customized code and enhancements. This
agreement has an initial term of two years and is renewable annually at the
option of the parties.
In March 2000, the Corporation entered into an additional agreement
in connection with the technology licensing agreement to provide Bank of
America with hosting application services and implementation consulting
services.
CITIGROUP
In August 1999, the Corporation issued to Citicorp Strategic
Technology Corporation, a subsidiary of Citigroup, 950,000 Common Shares at a
price of $3.83 per share, for gross proceeds of $3,633,750. Citicorp
Strategic Technology Corporation also contracted at the time to subscribe for
5,450,000 additional Common Shares at a price of $3.83 per share upon the
satisfaction of certain conditions, including the receipt of applicable
regulatory approvals. The option was exercised in October 1999 for gross
proceeds of $20,846,250. Citicorp Strategic Technology Corporation holds
6,400,000 Common Shares.
In December 1999, the Corporation entered into a master technology
license agreement with Citicorp Strategic Technology Corporation. The initial
term of the master agreement will be five years. The agreement enables
Citigroup and its affiliates to license the Corporation's technology by
entering into separate agreements which will incorporate the terms of the
master agreement. The specific terms of any agreement of this type, including
the specific technology to be licensed, the license fees to be paid to the
Corporation, the term of the license, and other material terms, may vary.
Citigroup has announced its intention to implement the 724 Solutions FSP
worldwide under the leadership of its e-Citi division. The Corporation is
working with a number of Citigroup's subsidiaries, including Citibank and
Salomon Smith Barney Inc., to deliver the 724 Solutions FSP to their banking
and brokerage customers. To date, the Corporation has entered into an
agreement under the master technology license agreement with a Citigroup
affiliate in Asia.
Citicorp Strategic Technology Corporation is required to pay to the
Corporation a specified minimum amount during each year that the master
agreement is in effect, whether or not Citigroup or any Citigroup affiliates
actually enter into agreements under the master agreement to license the
Corporation's technology. These required payments to the Corporation will
increase each year of the agreement, up to specified maximum levels, based on
specified targets relating to the number of world-wide Citigroup customers
that use services based upon the 724 Solutions FSP, the number of Citigroup
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affiliates that license the Corporation's technology and the amount of
revenue generated under this agreement. The Corporation's revenues under the
master license agreement will remain at the minimum amounts if the
Corporation does not enter into additional agreements under the master
agreement.
The Corporation has agreed to provide to each Citigroup licensee
maintenance services relating to the technology that the Corporation licenses
under the master agreement. These maintenance services will include, among
other things, the provision of updates and upgrades to the Corporation's
technology that are generally made available to the Corporation's customers.
The master agreement also provides that the Corporation will perform services
for Citigroup affiliates that license the Corporation's technology under the
agreement, including consulting, development, implementation and other
services. The terms of any services of this type, including the fees to be
paid to the Corporation for these services, will be set forth in a separate
agreement that will be entered into by the Corporation and the applicable
Citigroup affiliate.
The Corporation agreed to purchase from Citicorp Strategic
Technology Corporation a range of consulting services that are described in
the master agreement. These services will include consulting services
relating to the promotion of the Corporation's technology for adoption by
Citigroup's affiliates. The Corporation will pay, for these services, a fee
that will be calculated based upon the number of Citigroup affiliates that
enter into agreements to license the Corporation's technology during the
first year of the master agreement.
SONERA CORPORATION
In August 1999, the Corporation issued 6,400,000 Common Shares to
Sonera Corporation for a price of $3.83 per share for gross proceeds of
$24,480,000. In January 2000, Sonera Corporation transferred these shares to
its wholly-owned subsidiary, SmartTrust Holdings B.V.
MARTIN A. STEIN
Since August 1999, the Corporation has received consulting services
from Martin A. Stein, one of the Corporation's directors. Mr. Stein provides,
upon the Corporation's request, strategic planning advice in connection with
the Corporation's business. The consulting arrangement is for a two-year term
ending in August 2001. Mr. Stein will receive a monthly fee of approximately
$34,000, and has been issued a stock option under the Corporation's Canadian
Stock Option Plan in respect of an aggregate of 48,000 Common Shares, with an
exercise price of $3.75 per share.
MCLELLAN PATENT APPLICATION
In July 1999, the Corporation entered into an agreement with Dr.
Kerry McLellan, a director and senior officer of the Corporation, pursuant to
which the Corporation purchased his rights under patent applications filed in
the U.S. and Canada relating to a security system for electronic
transactions. The Corporation paid Dr. McLellan a nominal purchase price for
these rights and agreed to reimburse him for the expenses that he incurred in
filing these applications. The applications cover a security system that the
Corporation does not expect to incorporate into its product in the near
future. Under the Corporation's agreement, it has agreed to pay Dr. McLellan
a portion of any licensing fees that the Corporation receives from any
license of the rights covered by these patent applications and a portion of
the proceeds of any sale of these rights. Dr. McLellan also has the right to
repurchase the rights covered by the patent applications from the Corporation
until the earlier of: (i) May 2001; or (ii) the date on which a U.S. patent
governing the technology is issued. The Corporation has the right to
terminate Dr. McLellan's royalty rights, rights to receive a portion of any
sale proceeds and right to buy back these rights until July 2003.
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BLUE SKY CAPITAL CORPORATION AND 1319079 ONTARIO INC.
In September 1997, the Corporation issued 3,999,800 Common Shares,
together with an option to purchase an additional 4,000,000 Common Shares, to
Blue Sky Capital Corporation ("Blue Sky"), an entity controlled by the
Corporation's Chairman and Chief Executive Officer, for an aggregate purchase
price for the Common Shares and the option of approximately Cdn. $2.0
million. Blue Sky had earlier subscribed for 200 Common Shares on formation
of the Corporation. The option was transferred to a second entity under Mr.
Wolfond's control, 1319079 Ontario Inc., and was exercised in October 1998 at
an exercise price of Cdn. $0.50 per share.
REGISTRATION RIGHTS
The Corporation is a party to a shareholders' agreement with
certain entities (including the companies owned or controlled by Mr. Wolfond)
which had become shareholders prior to the Corporation's initial public
offering (the "Pre-IPO Shareholders"). This agreement provides that, subject
to specified limitations, if the Corporation proposes to register or qualify
for public distribution any Common Shares under the securities laws of the
U.S. or Canada, the Pre-IPO Shareholders, other than those owning less than
5% of the issued and outstanding common shares (provided such shares have
become freely tradeable under applicable law), have the transferable right to
include their Common Shares in the public distribution. Furthermore, either
Mr. Wolfond's companies, on the one hand, or the other Pre-IPO Shareholders
(acting collectively but separately from Mr. Wolfond's companies), may
require the Corporation to qualify a prospectus for, or effect the
registration of, all or part of their Common Shares in a public distribution.
These "demand" rights apply during the period commencing nine months after
the date of the Corporation's initial public offering and ending on the
fourth anniversary of that offering. The number of shares to be included in a
public distribution can be limited by the Corporation based on advice from
the underwriters of that offering as to the prevailing demand for the Common
Shares.
UNDERWRITING FEES
The Corporation has completed its initial public offering of
6,000,000 Common Shares at a purchase price of Cdn. $37.31 per share (U.S.
$26.00 per share), which closed on February 2, 2000. The Corporation offered
1,500,000 of those Common Shares in Canada through a syndicate of Canadian
underwriters, which was comprised of Nesbitt Burns, Inc. (a subsidiary of
Bank of Montreal), RBC Dominion Securities Inc. and Credit Suisse First
Boston Securities Canada Inc. (the "Canadian Underwriters"). The Corporation
offered the remaining 4,500,000 of those Common Shares in the United States
through a syndicate of underwriters, which was comprised of Credit Suisse
First Boston Corporation, FleetBoston Robertson Stephens Inc. and Thomas
Weisel Partners LLC (the "U.S. Underwriters" and, collectively with the
Canadian Underwriters, the "Underwriters"). The Corporation granted an
over-allotment option to the Underwriters exercisable within 30 days from the
completion of the initial public offering to purchase a maximum of 900,000
additional Common Shares (purchasable pro rata to the allocation of the
underwritten portion of the offering), on the same terms, to cover
over-allotments, if any. The Underwriters exercised the over-allotment option
in full on February 2, 2000. Accordingly, the aggregate proceeds raised by
the Corporation amounted to Cdn. $259.2 million, the aggregate underwriting
fees were Cdn. $18.2 million and the net proceeds to the Corporation were
Cdn. $241.0 million.
<PAGE>
-30-
APPOINTMENT OF AUDITORS
Unless such authority is withheld, the persons named in the
accompanying form of proxy intend to vote FOR the appointment of KPMG LLP,
Chartered Accountants, Toronto, Ontario, as auditors of the Corporation to
hold office until the next annual meeting of Shareholders and the
authorization of the Board of Directors to fix the remuneration of the
auditors. KPMG LLP have been the Corporation's external auditors since March
1999. Representatives of KPMG LLP are expected to be present at the Meeting
and to be available to respond to appropriate questions and to make
statements as they desire. These resolutions require the approval of a
majority of the votes cast in person or by proxy by the Shareholders who vote
in respect of the resolutions at the Meeting.
SHAREHOLDER PROPOSALS
Proposals of resolutions by Shareholders intended to be presented
at the 2001 annual meeting of Shareholders must be received for inclusion in
the Corporation's management information circular for such meeting by Monday,
April 2, 2001. Shareholders submitting such proposals are requested to
address them to 724 Solutions Inc., Suite 702, 4101 Yonge Street, Toronto,
Ontario M2P 1N6, attention: Secretary.
AVAILABILITY OF CERTAIN DOCUMENTS
The Corporation will provide to any person, upon written request at
any time:
(i) one copy of the Annual Information Form of the Corporation
together with one copy of any document, or the pertinent
pages of any document, incorporated by reference therein;
<PAGE>
-31-
(ii) one copy of the comparative financial statements of the
Corporation for its most recently completed fiscal year
together with the accompanying report of the auditors and
one copy of any interim financial statements of the
Corporation subsequent to the financial statements for its
most recently completed fiscal year; and
(iii) one copy of the information circular of the Corporation in
respect of its most recent annual meeting of shareholders
that involved the election of directors,
provided that the Corporation may require the payment of a reasonable charge
if the request is made by a person who is not a securityholder of the
Corporation. Written requests for a copy of the above-noted documents should
be directed to 724 Solutions Inc., Suite 702, 4101 Yonge Street, Toronto,
Ontario M2P 1N6, attention: Ray McManus, Director, Public Relations and
Investor Relations.
APPROVAL BY BOARD OF DIRECTORS
The undersigned, the President, General Counsel and Secretary,
certifies that the Board of Directors of the Corporation has approved the
contents and sending of this Management Information Circular.
DATED the 25th day of April, 2000 By Order of the Board of Directors
/s/ Christopher Erickson
------------------------
CHRISTOPHER ERICKSON
President, General Counsel and Secretary
<PAGE>
SCHEDULE "A"
TEXT OF THE SPECIAL RESOLUTION CONCERNING
AN AMENDMENT TO THE ARTICLES OF THE CORPORATION
TO INCREASE THE MINIMUM NUMBER OF DIRECTORS
"BE IT RESOLVED as a special resolution that:
1. The Articles of the Corporation be amended by changing the number of
directors from a minimum of 1 and a maximum of 20 directors to a
minimum of 3 and a maximum of 20 directors.
2. Any officer or director of the Corporation be and is hereby authorized
and directed to execute, under the corporate seal or otherwise, and to
deliver all documents and to do all things necessary or desirable to
effect such amendment, including the execution and delivery to the
Ministry of Consumer and Commercial Relations (Ontario) of Articles of
Amendment for such purpose."
<PAGE>
SCHEDULE "B"
TEXT OF THE SPECIAL RESOLUTION REGARDING
THE DETERMINATION OF THE NUMBER OF DIRECTORS
"BE IT RESOLVED as a special resolution that:
1. The number of directors of the Corporation and the number of directors
to be elected at this annual and special meeting of shareholders shall
be 12; and
2. The directors of the Corporation are empowered to determine from time
to time the number of directors of the Corporation between the minimum
and the maximum number of directors set out in the Articles of the
Corporation, such determination to be made by resolution of the Board
of Directors".
<PAGE>
724 SOLUTIONS INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that the Annual and Special Meeting of Shareholders of
724 SOLUTIONS INC. (the "Corporation") will be held at the News Theatre, 98 The
Esplanade, Toronto, Ontario on Wednesday, May 31, 2000, at the hour of 11:00
a.m. (Toronto time), for the following purposes:
1. To receive the Annual Report of the Corporation, the financial
statements of the Corporation contained therein as at and for the
year ended December 31, 1999 and the report of the auditors
thereon.
2. To amend the Articles of the Corporation to increase the minimum
number of directors required from one individual to three
individuals.
3. To increase the number of directors and the number of directors to
be elected at the meeting from nine to 12 and to delegate to the
Board of Directors the ability to determine by resolution the
number of directors of the Corporation from time to time within
the minimum and maximum limits set out in the Articles of the
Corporation.
4. To amend the 2000 Stock Option Plan (the "Plan") to increase the
maximum number of common shares of the Corporation ("Common
Shares") which may be reserved for issuance under the Plan from
2,000,000 to 3,800,000 Common Shares.
5. To elect directors.
6. To appoint KPMG LLP, Chartered Accountants, as independent
auditors for fiscal 2000 and to authorize the Board of Directors
to fix the remuneration of the auditors.
7. To transact such further and other business as may properly come
before the meeting or any adjournment or adjournments thereof.
A copy of the Annual Report and Management Information Circular and a form of
Proxy accompany this Notice.
DATED at Toronto, this 25th day of April, 2000.
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ Christopher Erickson
------------------------
Christopher Erickson
President
NOTE: SHAREHOLDERS WHO ARE UNABLE TO BE PRESENT IN PERSON AT THE MEETING ARE
REQUESTED TO FILL IN, DATE, SIGN AND RETURN, IN THE ENVELOPE PROVIDED FOR THAT
PURPOSE, THE FORM OF PROXY ACCOMPANYING THIS NOTICE. IN ORDER TO BE VOTED,
PROXIES MUST BE RECEIVED BY THE CORPORATION, C/O ITS REGISTRAR AND TRANSFER
AGENT, MONTREAL TRUST COMPANY OF CANADA, 151 FRONT STREET WEST, 8TH FLOOR,
TORONTO, ONTARIO, M5J 2N1, ATTENTION: STOCK TRANSFER DEPARTMENT, BY NO LATER
THAN 5:00 P.M. (TORONTO TIME) ON MONDAY, MAY 29, 2000 OR, IN THE CASE OF ANY
ADJOURNMENT OF THE MEETING, BY NO LATER THAN 5:00 P.M. (TORONTO TIME) ON THE
SECOND BUSINESS DAY IMMEDIATELY PRECEDING THE DATE OF SUCH ADJOURNED MEETING.
<PAGE>
724 SOLUTIONS INC.
PROXY FOR HOLDERS OF COMMON SHARES
SOLICITED BY MANAGEMENT FOR THE ANNUAL AND SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 31, 2000
THE UNDERSIGNED HOLDER OF COMMON SHARES OF 724 SOLUTIONS INC. (THE
"CORPORATION"), HEREBY APPOINTS CHRISTOPHER ERICKSON, OR FAILING HIM GREGORY
WOLFOND, OR INSTEAD OF EITHER OF THEM __________________________________________
AS PROXY FOR THE UNDERSIGNED, WITH POWER OF SUBSTITUTION, TO ATTEND AND ACT FOR
AND ON BEHALF OF THE UNDERSIGNED AT THE ANNUAL AND SPECIAL MEETING (THE
"MEETING") OF SHAREHOLDERS OF THE CORPORATION TO BE HELD AT 11:00 A.M. (TORONTO
TIME) ON WEDNESDAY, MAY 31, 2000 AT THE NEWS THEATRE, 98 THE ESPLANADE, TORONTO,
ONTARIO, AND AT ANY ADJOURNMENTS THEREOF AND TO VOTE, AS DIRECTED BELOW, ALL
COMMON SHARES IN THE CAPITAL OF THE CORPORATION ("COMMON SHARES") WHICH THE
UNDERSIGNED WOULD BE ENTITLED TO VOTE IF THEN PERSONALLY PRESENT:
(a) FOR / / or AGAINST / / the special resolution authorizing an
amendment to the Articles of the Corporation to change the minimum
number of directors from one individual to three individuals, all
as described in the Management Information Circular accompanying
this form of Proxy under the heading "Amendment to the Articles of
the Corporation with Respect to the Minimum Number of Directors".
(b) FOR / / or AGAINST / / the special resolution fixing the number of
directors at 12 and empowering the Board of Directors to determine
by resolution the number of directors of the Corporation from time
to time within the minimum and maximum limits set out in the
Articles of the Corporation, all as described in the Management
Information Circular accompanying this form of Proxy under the
heading "Determination of Number of Directors".
(c) FOR / / or AGAINST / / the resolution amending the 2000 Stock
Option Plan (the "Plan") whereby the maximum number of Common
Shares to be reserved for issuance under the Plan will be
increased from 2,000,000 to 3,800,000, all as described in the
Management Information Circular accompanying this form of Proxy
under the heading "Amendment to the Corporation's 2000 Stock
Option Plan".
(d) FOR / / or WITHHOLD FROM VOTING / / in the election of the
nominees listed below as directors of the Corporation for a term
of one year. (A SHAREHOLDER MAY WITHHOLD AUTHORITY TO VOTE FOR A
PARTICULAR NOMINEE(S) BY LINING THROUGH OR OTHERWISE STRIKING OUT
THE NAME(S) OF THE PARTICULAR NOMINEE(S) AND CHECKING THE "FOR"
BOX.)
Gregory Wolfond, Lloyd F. Darlington, Martin A. Stein, James D.
Dixon, Harri Vatanen, Alan Young, Christopher Erickson, Andre
Boysen and Kerry McLellan; and
if the shareholders approve the special resolution referred to in
paragraph (b) fixing the number of directors at 12, Holger Kluge,
Heather Reisman and Barry Reiter.
(e) FOR / / or WITHHOLD FROM VOTING / / on the resolution to appoint
KPMG LLP, Chartered Accountants, as independent auditors for
fiscal 2000 and to authorize the Board of Directors to fix the
remuneration of the auditors.
(f) In his or her discretion, with respect to any amendment or
variation to the matters hereinbefore specified, or on such
further or other business as may properly come before the Meeting
or any adjournments thereof.
The proxy named above will vote or withhold from voting the shares in respect of
which he or she is appointed on any ballot that may be called for in accordance
with the directions of the shareholder appointing him or her. IN THE ABSENCE OF
SUCH DIRECTION, SUCH SHARES WILL BE VOTED FOR THE RESOLUTIONS SPECIFIED IN
PARAGRAPHS (A), (B), (C), (D) AND (E) ABOVE ON ANY BALLOT THAT MAY BE CALLED
FOR.
<PAGE>
The undersigned hereby ratifies and confirms all that the said proxy may do by
virtue hereof, granting to the said proxy full power and authority to act for
and in the name of the undersigned at the said Meeting or at any adjournments
thereof, and hereby revokes any proxy or proxies heretofore given to vote,
attend or act with respect to the said shares.
THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT OF THE CORPORATION AND THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED OR WITHHELD FROM BEING VOTED, AS
STATED ABOVE, IN ACCORDANCE WITH THE INSTRUCTIONS OF THE UNDERSIGNED ON ANY
BALLOT THAT MAY BE CALLED FOR AND, IF THE UNDERSIGNED HAS SPECIFIED A CHOICE
WITH RESPECT TO ANY MATTER TO BE ACTED UPON, THE SHARES REPRESENTED BY THIS
PROXY SHALL BE VOTED ACCORDINGLY AT THE MEETING AND AT ANY ADJOURNMENTS THEREOF.
THE UNDERSIGNED HAS THE RIGHT TO APPOINT A PERSON TO ATTEND, VOTE AND ACT FOR
AND ON HIS OR HER BEHALF AT THE MEETING OR ANY ADJOURNMENTS THEREOF OTHER THAN
THE PERSONS NAMED ABOVE AND MAY EXERCISE SUCH RIGHT BY INSERTING THE NAME OF HIS
OR HER NOMINEE, WHO NEED NOT BE A SHAREHOLDER OF THE CORPORATION, IN THE BLANK
SPACE PROVIDED ABOVE FOR THE PURPOSE, OR BY COMPLETING ANOTHER PROPER FORM OF
PROXY.
The undersigned hereby acknowledges receipt of the Notice of Meeting dated April
25, 2000 and of the accompanying Management Information Circular.
DATED the day of , 2000
- - ------------------------------------------------
Signature of Registered Shareholder or Authorized
Signing Officer
- - ------------------------------------------------
Name of Registered Shareholder (PLEASE PRINT)
Please insert the date that the proxy is signed in the space provided. If the
date has not been inserted, this form of proxy is deemed to bear the date on
which it is mailed. Please sign exactly as your name appears on your share
certificates. If the shareholder is a corporation, this proxy must be executed
by an officer or attorney thereof duly authorized.
<PAGE>
[LOGO] [PLACE POSTAGE HERE]
724 SOLUTIONS INC.
c/o Montreal Trust Company of Canada
151 Front Street West
8th Floor
Toronto, Ontario
M5J 2N1
Attention: Stock and Bond Transfer Services
<PAGE>
[LOGO]
TO: NON-REGISTERED SHAREHOLDERS
National Policy Statement No.41/ Shareholder Communication provides beneficial
shareholders with the opportunity to elect annually to have their name added to
an issuer's supplemental mailing list in order to receive interim financial
statements of the Company. If you are interested in receiving such statements or
other selective shareholder communications, please complete and return this
card.
Name: (Please Print)_________________________________________________________
Address:______________________________________________________________________
______________________________________________________Postal Code:____________
Signature:____________________________________________Date:___________________
I certify that I am a beneficial shareholder.
<PAGE>
724 SOLUTIONS
[LOGO]
1999 REPORT TO SHAREHOLDERS
<PAGE>
CONTENTS
<TABLE>
<C> <S>
1 Fellow Shareholders
4 Management's Discussion and Analysis
13 Management's Responsibility for Financial Statements
13 Auditors' Report to Shareholders
14 Financial Statements
18 Notes to Consolidated Financial Statements
29 Board of Directors and Officers
29 Corporate Information
29 Shareholder Information
</TABLE>
<PAGE>
FELLOW SHAREHOLDERS
As we move into the 21st Century, I can't help but marvel at the incredible
shift in economic power to the consumer. The Internet, only visible to consumers
for a few short years, is beginning to shake the foundations and the fundamental
value propositions of long-standing business. And there is no escaping it.
Consumers going online in unprecedented numbers, are gaining access to
information -- and information equals power. A consumer buying a car
today -- and I am one of them -- walks into the dealership armed with consumer
reports, comparative pricing and even the dealer cost for the model they want.
Gone are the days when the dealer had the power, gone are the days of "make me
an offer." Margins for the car dealer will never be the same. And this is
happening in every business -- from cars, to books, to music, to financial
services.
Not very long ago, we started our business to help financial services
companies transform their business by leveraging their trust, their people,
their infrastructure and the latest Internet technology to provide a better
value proposition to their customers.
Easy, Convenient Access -- Anytime
Using our Internet infrastructure -- the 724 Solutions Financial Services
Platform -- the Bank of Montreal and its affiliate brokerage Nesbitt Burns were
the first to roll out our service in November 1999. A first in North America,
the Bank of Montreal's Veev offering brings the customer's banking and brokerage
information onto their mobile phone, Palm platform device, or PC. Veev allows
customers to easily and conveniently check account balances and transaction
histories, pay bills, transfer funds, order cheques, get stock quotes and
charts, perform online trading, and gather investment portfolio information.
Customers are also given access to more personalized features such as stock
watchlists, alerts, news, weather, horoscopes, and lottery results. Bank of
Montreal customers no longer have to worry about branch hours -- they can access
the banking and brokerage information that matters most to them seven days a
week, 24 hours a day.
This convenience empowers consumers like me to transact when I have the
time -- whether it's on the road or while waiting for a friend at the movie
theatre. It allows me to receive personalized and relevant information, when I
need it most, via alerts. The Internet is no longer just for the PC -- people
are using everything from mobile phones, two-way pagers, personal digital
assistants, television sets and video game consoles to get online. The world has
woken up to the opportunity. According to Dataquest, the number of digital
mobile subscribers will grow to 828 million by 2003.
This is greater than the predicted number of users accessing the Internet
via PC! In the end, mobile devices are smaller, easier to use, easier to carry
and they are always on. And that's what makes our solution so attractive-working
with the financial institution, we put a personalized ATM in every consumer's
pocket.
Leaders in the online banking financial services world such as Bank of
America, Citigroup and Wells Fargo have signed-up and licensed the 724 Solutions
Financial Services Platform -- all with the intent to make their online services
available on wireless devices. Bank of Montreal's US affiliate Harris Bank has
announced that customer trials of its 724 Solutions-empowered
1
<PAGE>
Harris Wireless have begun. Financial institutions recognize the need to be
available to their customers anytime, anywhere, and on any Internet-enabled
device they choose. And moving that idea even further, 724 Solutions wants to
ensure that consumers get the same secure, compelling, personalized user
experience across all of the devices, so that when I use my digital mobile phone
to pay some last-minute bills before I board the plane, what I see and do on
that phone is not very different from when I paid some bills using my PDA last
week over coffee at my favourite bookstore or last month on my home PC.
Innovation in the Mobile Space
An important tool in reaching that goal lies in the relationships 724
Solutions has built with leading device manufacturers. Ericsson, Motorola,
Nokia, Palm, Qualcomm, Research in Motion and NeoPoint -- these companies are
developing exciting features that they have added to their mobile devices to
make it easier for the consumer to access the information they need. But as
easy, convenient and fun as these devices are, there continues to be endless and
rapid innovation in the devices consumers use, and our customers need to be able
to keep pace by offering services on those devices as they become available. As
non-PC devices continue their transformation, they become an even more critical
part of the customer relationship. I have had the opportunity to see some of
these devices of the not-so-distant future at a variety of trade shows and
exhibits around the world, and there are some very exciting developments about
to hit the mobile space -- things that will make our applications increasingly
meaningful for consumers. And that's what this is really all about -- connecting
to consumers and switching them on to the mobile space by helping device
manufacturers develop the products that optimize our solution and, in turn,
optimize our customers' financial services offerings and deepen their customer
relationships.
Extending Our Solution
As our rollout of core financial services has developed, consumers have told
us that they increasingly want to use their phones to easily and securely
perform other types of transactions. The ability for financial institutions to
provide secure payment and wallet functionality to their customers -- in effect,
enabling every device used by the consumer with a "buy now" button -- is very
compelling. It extends the financial institution's consumer trust into the new
economy. To this end, we have signed agreements with wireless mobility leader
Ericsson and integrated communications provider Motorola to develop world-class
mobile financial and e-commerce solutions across a number of Internet-enabled
devices and wireless networks. But more than just solutions, we also want to
develop standards for the mobile space. We are working with Ericsson and
MasterCard to develop standards for secure mobile payments, and we continue our
affiliation with standards bodies such as Wireless Application Protocol (WAP)
and Radicchio, a wireless e-commerce security alliance and promoter of public
key infrastructure (PKI) technology.
Our first live example of what we expect to be a broadening of our offering
into the realm of mobile e-commerce is the extension of the Bank of Montreal's
Veev service to include wireless shopping functionality. In collaboration with
the Bank of Montreal and Indigo.ca, a Canadian retailer that has known huge
success with its online shopping capability, we have enabled Veev subscribers to
browse through a series of Indigo.ca bestseller lists and purchase their book of
choice using their digital mobile phones. The Indigo.ca offering was launched in
April, and we continue to work with the company and Bank of Montreal to soon
increase
2
<PAGE>
Indigo's services by adding more products such as music and flowers, and by
adding an alert system to remind consumers of upcoming birthdays and
anniversaries.
Since the January IPO, we have struck an important strategic partnership
with Exodus Communications to help build out our application hosting
capabilities in order to speed-up implementation and time-to-market for our
solution, and help reduce maintenance and service costs for the financial
institution. By leveraging the leadership and expertise of Exodus Communications
in the application hosting field, we are able to increase the value for our
customers such as Claritybank.com, our first exclusively online banking customer
and the first to use our application hosting services.
And finally, we have expanded our platform through two key acquisition
opportunities: Yrless Internet Corporation of Oakville, Ontario, and our pending
acquisition of ezlogin.com Inc. of Santa Clara, California. With Yrless'
Internet messaging gateway technology, the 724 Solutions Financial Services
Platform has been complemented with a more network-friendly and enhanced
connectivity to carriers. ezlogin.com's technology focuses on aggregation
technology and services, and it will add value to our solution by enabling
financial institutions to deepen customer relations by giving customers a
consolidated view and complete access to all of their finances and other
important information with a single login. For instance, I will be able to
register all my login and password information for my online financial accounts
in one, secure place -- my bank -- and then use just one login and password to
see all of my personal financial information on a single, neat, consolidated
page.
Moving Forward
With offices now open in San Francisco, London, Tokyo, and Sydney, 724
Solutions is looking forward to pursuing customer and partnership opportunities
in new regions around the world. Our current customers represent more than
152 million consumer relationships, and we expect this base to grow as we sign
more financial institutions.
The innovation being driven by consumer power -- combined with new ways of
getting simpler, more convenient access to the Internet -- will drive a world of
constant change. But more than just moving content to new devices, it will drive
our customers to constantly be rethinking and radically changing their value
propositions.
724 Solutions will innovate with our customers, providing them with the
infrastructure to compete in this ever-evolving environment. Moving forward, we
will be adding more institutions to our customer base, extending our platform,
and driving innovation.
/s/ GREGORY WOLFOND
GREGORY WOLFOND
Chairman and Chief Executive Officer
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 1999
AND 1998 SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED CONSOLIDATED FINANCIAL
STATEMENTS AND THE ACCOMPANYING NOTES INCLUDED IN THIS ANNUAL REPORT. ALL
FINANCIAL INFORMATION IS IN U.S. DOLLARS UNLESS OTHERWISE NOTED.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, AND CONTAINS WORDS AND PHRASES SUCH AS WE OR MANAGEMENT
"ANTICIPATES," "BELIEVES," "PLANS," "ESTIMATES," "EXPECTS," "INTENDS" AND WORDS
OF SIMILAR IMPORT. THE STATEMENTS ARE SUBJECT TO CERTAIN RISK, UNCERTAINTIES AND
ASSUMPTIONS RELATING TO OUR OPERATIONS AND FINANCIAL PERFORMANCE. ACTUAL RESULTS
OR OUTCOMES ACCORDINGLY MAY VARY MATERIALLY FROM THOSE ANTICIPATED, BELIEVED,
PLANNED, ESTIMATED, EXPECTED, OR INTENDED AS A RESULT OF A VARIETY OF FACTORS
SET FORTH IN THIS REPORT, TOGETHER WITH THE RISKS DESCRIBED IN OUR FILINGS WITH
THE U.S. SECURITIES AND EXCHANGE COMMISSION AND THE CANADIAN SECURITIES
ADMINISTRATORS. WE DISCLAIM ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION OR FUTURE
EVENTS, OR EXCEPT AS OTHERWISE REQUIRED BY LAW.
OVERVIEW
Our company was established in July 1997 to conceive, design and deliver an
Internet infrastructure solution that enables financial institutions to deliver
financial information and services using a broad range of Internet-enabled
devices. Our technology may be adapted for use by other types of online
merchants and for other applications.
For the period from July 1997 to May 1999, we were in a development phase,
conducting research and developing our product. In May 1999, we launched our
product on a trial basis with a limited number of customers of the Bank of
Montreal. During the trial, these customers were able to access banking and
brokerage services and lifestyle content, including news, stock quotes, weather,
lottery results and horoscopes, through Internet-enabled devices, specifically
Palm Pilot connected organizers and mobile phones. This trial was completed in
September 1999. During the period from May 1999 through December 1999, we filled
key management positions in our sales and marketing departments, attracted Bank
of America, Citigroup and Sonera Corporation as investors, entered into license
agreements with Bank of America, Wells Fargo and Citigroup, and continued to
develop our product. Our headcount grew to 183 employees as of December 31, 1999
from 46 employees as of December 31, 1998.
Our consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles. These principles conform in
all material respects with U.S. generally accepted accounting principles, except
as disclosed in note 11 to our consolidated financial statements.
SOURCES OF REVENUE
Our primary sources of revenue are revenues generated under our license
agreements and services revenue. Historically, our services revenue has
consisted primarily of implementation, customer service and maintenance fees. We
are incurring upfront implementation costs to enable our customers to implement
our solutions more quickly. In the future, we expect our services revenue to
also include amounts derived from the operation of our application hosting
service, revenue sharing arrangements and commissions on e-commerce
transactions.
4
<PAGE>
CURRENT SOURCES OF REVENUE
LICENSE FEES
Our two initial license agreements were with Bank of Montreal and Bank of
America, and used a fixed fee license model. Under this model, our customer pays
us a fixed annual license fee in whole or part upon execution of the license
agreement, and periodically thereafter during the term of the agreement. The use
of this model helped provide us with the initial cash flow that was necessary to
fund our development and start-up costs.
After raising additional capital in August 1999 through the issuance of
common shares, we had the financial resources to forego this fixed fee license
model in favor of a variable fee license model. Our agreement with Citigroup and
the license for certain functionalities under the Wells Fargo agreement uses
this model. The variable fee license model is based on a per user fee. The
transition of our revenue model from fixed fee to variable fee will have two
significant consequences: first, we will no longer receive large initial
payments under our license agreements; and secondly, we expect our revenue
stream to vary with the number of our customers' end users. We expect that these
variable fees will be subject to a minimum quarterly payment and we expect to
provide incentive discounts to our customers based on the number of their
customers using our Financial Services Platform.
Under the fixed fee license model, we recognize revenue when we have
executed an agreement with a customer, when delivery and acceptance have
occurred, and when the collection of the related receivable is deemed probable.
Under the variable fee license model, we commence the recognition of revenue
when those same conditions have been satisfied. Under the variable fee license
model, revenue from the minimum payments is recognized on a monthly basis.
Revenue associated with user fees in excess of any minimum payments is
recognized on a quarterly basis when the amount is determined.
In the year ended December 31, 1999, our software development revenue
consisted of amounts earned under our technology license agreement with Bank of
Montreal, which agreement required us to perform the relevant research and
development work on a best efforts basis. There were no specific product
deliverables set forth under the agreement. The revenue relating to this
contract is being recognized ratably over its term.
Unless renewed, the term of our license agreements with each of our current
customers is as follows:
<TABLE>
<CAPTION>
Customer Date of expiration
- - -------- ------------------
<S> <C>
Bank of Montreal February 2001
Bank of America February 2001
Wells Fargo September 2003
Citigroup December 2004
</TABLE>
IMPLEMENTATION AND CUSTOMER SERVICE FEES
Revenue from implementation and customer services includes fees for
implementation of the 724 Solutions Financial Services Platform, consulting and
training services. We currently rely and expect to continue to rely on a
combination of our own resources and third-party consulting organizations to
deliver these services to our customers. Customers are charged a fee based on
time and expenses. Revenue from implementation and customer service fees is
recognized on a monthly basis as the services are performed.
MAINTENANCE FEES
We receive revenue from maintaining and servicing our product for our
customers. The maintenance fee is typically equal to a specified percentage of
the customer's license fee. If associated with the fixed fee license model, the
maintenance revenues received will be deferred and recognized on a straight-line
basis over the contract period. When associated with the variable fee license
model, any minimum payments will be recognized on a monthly basis. Maintenance
revenue in excess of any minimum payments will be recognized on a quarterly
basis when the amount is determined.
5
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
ANALYSIS OF STATEMENT OF OPERATIONS
REVENUE
Our revenue, before the offset of stock-based compensation, increased to
$2.9 million for the year ended December 31, 1999 from $1.9 million for the year
ended December 31, 1998. Our software development revenue, before the offset of
stock-based compensation, remained approximately the same at $1.7 million for
the years ended December 31,1999 and 1998. All software development revenue
realized in 1999 and 1998 related to our contract with Bank of Montreal. Our
service revenue increased to $1.2 million for the year ended December 31, 1999
from $208,000 for the year ended December 31, 1998. This increase resulted from
our entry into additional contracts for consulting and software design services
for implementations at Bank of Montreal, Bank of America and Wells Fargo.
We signed technology license agreements with Bank of America and Wells Fargo
in 1999, and we will begin to recognize this revenue in 2000. In addition, we
signed a technology license agreement with Citigroup in December 1999 under our
variable user fee model. We anticipate that we will initially recognize the
minimum monthly amounts in 2000 as Citigroup's customers begin to use services
based upon our Financial Services Platform and as various affiliates of
Citigroup become licensees under this master agreement.
STOCK-BASED COMPENSATION RELATED TO SOFTWARE DEVELOPMENT REVENUE
Under our subscription agreement with Bank of Montreal dated April 30, 1998,
we granted an option to Bank of Montreal to subscribe for 2,428,570 common
shares for Cdn. $1.0 million. This option was only exercisable in the event that
Bank of Montreal extended its technology license agreement for a second year. On
the date the option was exercisable and exercised, the fair value of the
2,428,570 common shares was Cdn. $6.1 million, resulting in a stock-based
compensation charge of Cdn. $5.1 million, or U.S. $3.3 million. This stock-based
compensation charge is being attributed to our software development revenue over
the term if the technology license agreement ratably in proportion to the
revenue recognized under the agreement.
Stock-based compensation related to software development revenue increased
to $1.6 million for the year ended December 31, 1999 from $1.4 million for the
year ended December 31, 1998.
OPERATING EXPENSES
COST OF SERVICES REVENUE. Our cost of services revenue consists of salaries
and related expenses for our application hosting services, consulting services,
customer support, implementation and training services and an allocation of
expenses related to facilities, administration and depreciation. It also
includes payments to third parties contracted to provide consulting services to
customers and software licensing expenses and royalties paid for integration of
their software into our Financial Services Platform.
Our cost of services revenue increased to $1.9 million for the year ended
December 31, 1999 from $61,000 for the year ended December 31, 1998. This
increase was primarily related to the addition of implementation and customer
service personnel to support our additional customers in 1999. The increase in
cost of services revenue also reflects amounts paid to third party consultants
and software providers.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related costs for research and development
personnel, including independent contractors and consultants, software licensing
expenses and royalties, and allocated operating expenses.
Research and development expenses increased to $7.5 million for the year
ended December 31, 1999 from $2.3 million for the year ended December 31, 1998.
This increase largely reflects the addition of personnel to our research and
development department, primarily to support the second release of our software.
6
<PAGE>
SALES AND MARKETING. Sales and marketing expenses include compensation,
public relations and advertising, trade shows, marketing materials and allocated
operating expenses.
Sales and marketing expenses increased to $2.7 million for the year ended
December 31, 1999 from $412,000 for the year ended December 31, 1998. This
increase is primarily attributable to the hiring of additional sales and
marketing personnel, together with increased travel and related expenses. This
increase reflects the opening of sales offices in San Francisco and London in
1999. We expect that our sales and marketing expenses will continue to increase
as we expand internationally.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries and benefits for corporate personnel and other general and
administrative expenses such as professional fees, facilities and travel, net of
any allocation to our research and development and sales and marketing
departments. Our corporate staff includes several of our executive officers and
our business development, financial planning and control, legal, human resources
and corporate administration staff.
Our general and administrative expenses increased to $4.0 million for the
year ended December 31, 1999 from $547,000 for the year ended December 31, 1998,
which reflects the increase in our corporate staff.
TOTAL EXPENSES. Our total expenses were $16.1 million for the year ended
December 31, 1999 compared to $3.3 million for the year ended December 31, 1998.
We expect to incur additional expenses as we expand our operations to
accommodate growth in our employee base both in Canada and elsewhere as we open
additional offices outside of Canada to support our customers' needs worldwide.
DEPRECIATION AND AMORTIZATION. Total depreciation and amortization
(excluding amortization of deferred stock-based compensation)increased to
$752,000 for the year ended December 31, 1999 from $88,000 for the year ended
December 31, 1998, reflecting the capital spending in computer workstations and
software development tools used for R&D purposes.
AMORTIZATION OF DEFERRED EMPLOYEE STOCK-BASED COMPENSATION
Amortization of employee stock-based compensation was $165,000 for the year
ended December 31, 1999 compared to $181,000 for the year ended December 31,
1998. In 1998, we recognized $414,000 for deferred stock based compensation
related to options we granted to purchase 1,227,000 common shares under our
stock option plans at a weighted average exercise price of $0.34 per share. The
deferred stock-based compensation represents the difference between the exercise
prices of options granted to acquire certain common shares and the deemed fair
value for financial reporting purposes of our common shares on the respective
option grant dates. This deferred stock-based compensation will be amortized on
a straight-line basis over the vesting periods of these options.
INTEREST INCOME
Interest income, which increased to $1.0 million for the year ended
December 31, 1999 from $107,000 for the year ended December 31, 1998, was
derived from cash and cash equivalent balances, representing primarily the
unused portion of the proceeds from our issuances of common shares.
NET LOSS
We recorded a net loss of $13.8 million for the year ended December 31, 1999
compared to $2.7 million for the year ended December 31, 1998. The loss per
share, calculated using the weighted average number of shares outstanding, was
$0.82 for the year ended December 31, 1999 compared to a loss per share of $0.47
for the year ended December 31, 1998. Our losses in-creased as we invested
heavily in building our infrastructure. Research and development, along with
sales and marketing activities, increased to meet the required delivery
schedules for our products and to establish customer relationships.
7
<PAGE>
QUARTERLY STATEMENT OF OPERATIONS INFORMATION
(in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
1999 QUARTER ENDED TOTAL
Mar. 31 Jun. 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE
Software development.............................. $ 548 $ 383 $ 383 $ 383 $ 1,697
Services.......................................... 34 -- 754 381 1,169
Less: Stock-based compensation related to software
development revenue............................. (531) (371) (371) (371) (1,644)
------- ------- ------- ------- --------
Net revenue....................................... 51 12 766 393 1,222
OPERATING EXPENSES
Cost of services revenue.......................... -- 20 799 1,071 1,890
Research and development.......................... 1,171 1,402 2,019 2,944 7,536
Sales and marketing............................... 207 303 624 1,554 2,688
General and administrative........................ 332 629 1,214 1,808 3,983
------- ------- ------- ------- --------
Total operating expenses.......................... 1,710 2,354 4,656 7,377 16,097
------- ------- ------- ------- --------
Income (loss) from operations..................... (1,659) (2,342) (3,890) (6,984) (14,875)
Interest income................................... 61 28 252 703 1,044
------- ------- ------- ------- --------
Net income (loss)................................. $(1,598) $(2,314) $(3,638) $(6,281) $(13,831)
------- ------- ------- ------- --------
Basic and diluted net income (loss) per share..... $ (0.14) $ (0.20) $ (0.22) $ (0.23) $ (0.82)
------- ------- ------- ------- --------
Shares used in computing basic and diluted net
income (loss) per share (in thousands).......... 11,429 11,609 16,870 27,557 16,887
------- ------- ------- ------- --------
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTER ENDED TOTAL
Mar. 31 Jun. 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE
Software development.............................. $ -- $ 419 $ 630 $ 629 $ 1,678
Services.......................................... 208 -- -- -- 208
Less: Stock-based compensation related to software
development revenue............................. -- (91) (694) (610) (1,395)
------- ------- ------- ------- --------
Net revenue....................................... 208 328 (64) 19 491
OPERATING EXPENSES
Cost of services.................................. 61 -- -- -- 61
Research and development.......................... 124 372 638 1,143 2,277
Sales and marketing............................... 27 81 101 203 412
General and administrative........................ 41 104 110 292 547
------- ------- ------- ------- --------
Total operating expenses.......................... 253 557 849 1,638 3,297
------- ------- ------- ------- --------
Income (loss) from operations..................... (45) (229) (913) (1,619) (2,806)
Interest income................................... 18 20 31 38 107
------- ------- ------- ------- --------
Net income (loss)................................. $ (27) $ (209) $ (882) $(1,581) $ (2,699)
------- ------- ------- ------- --------
Basic and diluted net income (loss) per share..... $ (0.01) $ (0.04) $ (0.18) $ (0.17) $ (0.47)
------- ------- ------- ------- --------
Shares used in computing basic and diluted net
income (loss) per share (in thousands).......... 4,000 4,667 5,000 9,286 5,784
------- ------- ------- ------- --------
</TABLE>
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through issuances of common
shares, together with revenue from operations. During the year ended
December 31, 1999, we received aggregate proceeds of $71.2 million from the
issuance of our common shares. In February 2000, we completed our initial public
offering of an aggregate of 6,900,000 of our common shares, raising net proceeds
of approximately $166.7 million.
Net cash used in operating activities was $5.5 million for the year ended
December 31, 1999, and $4,000 for the year ended December 31, 1998. Net cash
used in operating activities for the year ended December 31, 1999 reflects our
operating loss of $13.8 million offset by depreciation of $752,000, amortization
of stock-based compensation of $1.8 million and net changes in working capital
of $5.8 million, primarily related to deferred revenue.
Cash provided from financing activities was $70.1 million for the year ended
December 31, 1999, and $2.6 million for the year ended December 31, 1998. These
cash flows primarily reflect the net proceeds received from issuances of our
common shares, which totaled 17,973,856 shares in 1999, and 7,428,570 shares in
1998.
Cash used in investing activities was $2.3 million for the year ended
December 31, 1999, and $927,000 for the year ended December 31, 1998. Cash used
in investing activities reflects purchases of capital assets in each period.
These expenditures consisted of purchases of computer hardware and software,
office furniture and equipment and leasehold improvements. We anticipate capital
expenditures to continue to increase as we invest heavily in our Financial
Services Platform and implement data centers to support our application hosting
activities.
IMPACT OF FOREIGN EXCHANGE RATE EXPOSURE
Substantially all of our revenue is expected to be earned in U.S. dollars. A
significant portion of our expenses is incurred in Canadian dollars. Changes in
the value of the Canadian dollar relative to the U.S. dollar may result in
currency translation gains and losses and could adversely affect our operating
results. To date, foreign currency exposure has been minimal. However, in the
future we intend to hedge all or a significant portion of our annual estimated
Canadian dollar expenses to minimize our Canadian dollar exposure. We are in the
process of implementing our currency strategy with respect to other of reign
currencies.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products were coded
to accept only two-digit entries in date code fields. Both before and after the
year 2000, these date code fields will need to accept four-digit entries to
enable the computer systems and software products to distinguish 21st Century
dates from 20th Century dates. Any of our computer programs or hardware that
have date-sensitive software or embedded computer chips which have not been
upgraded to be compliant with the requirements of the year 2000 changeover may
recognize a date using "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 properly
process transactions internally or in conjunction with external computer systems
on which we depend to provide our customers with our product and services.
Although we have not suffered from any of these types of events following the
change to calendar year 2000, we may do so in the future.
The year 2000 requirements affect the computers, software and other
equipment that we use, operate or maintain for our operations. Substantially all
of our software was developed after awareness of these issues became widespread
in the software industry, such that our software was designed with reference to
preventing year 2000-related difficulties from arising. Nonetheless, we have
adopted an internal policy to ensure that our product remains year 2000
compliant. We have conducted interface testing with all other products with
which our product
9
<PAGE>
interacts to determine if there are areas where the interfaces themselves are
not year 2000 compliant. We have taken proactive measures, implementing a
program of year 2000 awareness procedures for our employees, customers and
licensors to verify that all necessary procedures have been undertaken and to
ensure that our document management processes are constantly reviewed to ensure
year 2000 compliance. To the best of our knowledge, none of our internal systems
or equipment which are necessary for the conduct of our business has any
defects, errors or deficiencies relating to the year 2000 which are not capable
of being remedied, and all expenses associated with this remedial work have been
fully provided for in our business plans.
We have taken steps to ensure that our non-information technology systems
are year 2000 compliant. In particular, we established plans to ensure that our
critical systems, Including our electrical power, communications and payroll
systems, would not be impaired as a result of issues relating to the year 2000.
We also devised an internal communications plan and a contingency plan, which
designated certain individuals to respond to particular year 2000-related
problems if one occurred.
BALANCE SHEET
As at December 31, 1999 total assets were $73.2 million and shareholders'
equity was $62.2 million. As of December 31, 1999, we had working capital of
$58.7 million, which included $65.3 million in cash and cash equivalents.
DEFERRED REVENUE
Deferred revenue at December 31, 1999 of $6.1 million is composed of amounts
received from Bank of Montreal, Wells Fargo and Bank of America. These amounts
were received, but do not yet qualify for recognition as revenue under the
Company's revenue recognition policy. We received these amounts under the fixed
fee license model and we expect deferred revenue to decline in the future as we
implement the variable fee license model in future contracts.
DEFERRED STOCK-BASED COMPENSATION
Our deferred stock-based compensation, which is netted against shareholders'
equity, increased to $5.9 million at December 31, 1999 from $1.7 million at
December 31, 1998. During the year ended December 31, 1999, we recorded an
amortization expense of $165,000 related to employee stock-based compensation
and $1,644,000 of stock-based compensation related to software development
revenue. Of the $1,644,000, $1,396,000 was attributed to recognized software
development revenue and $248,000 was attributed to deferred revenue. In 1999, we
accrued an additional $5.8 million deferred stock compensation charge related to
employee stock options granted prior to our initial public offering. We will
amortize the deferred employee stock-based compensation over the vesting period
of these options, which is generally three years.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The following factors could materially and adversely affect our future
operating results and could cause actual events to differ materially from those
predicted in forward-looking statements related to our business.
We currently depend on the sale of a single product to generate most of our
revenue, and we expect this to continue for the foreseeable future. However, we
are looking to expand into other wireless opportunities, such as bill payment
and presentment, e-wallet services and e-commerce.
To date, all of our revenue has been attributable to the sale of our
solution to customers who have also purchased an equity interest in our company.
While the opportunity to invest in our company provided these customers with an
additional incentive to purchase our solution, we do not expect to offer this
opportunity to prospective customers, which may hurt our ability to sell our
product.
10
<PAGE>
A large portion of our revenue is derived from the sale of our solution to a
limited number of financial institutions. For the year ended December 31, 1999,
three customers accounted for 100% of our revenues. Our sales efforts target
large financial institutions worldwide, which require us to expend significant
resources educating prospective customers about the uses and benefits of our
product. Our sales cycle is subject to significant fluctuations and typically
ranges from four to six months, which may be longer due to delays over which we
have little or no control. Our lengthy sales cycle is due to factors including
customer concerns about the introduction or announcement of new products and
technologies, requests for product enhancements and an extensive evaluation
process that may involve many individuals or departments. In order to respond to
these issues, we focused on building our sales team in 1999 and will continue to
do so in 2000. In addition to the Toronto, San Francisco and London sales
offices, we opened our Tokyo and Sydney offices in February 2000. This allows us
to work more closely with our international customers.
Our success depends on financial institutions' acceptance of the Internet as
a viable means to deliver their services in order to grow our customer base. Our
future revenues depend on the ability of financial institutions who implement
our solution, to market our services to their customers. We currently rely on
signing contracts with monthly minimum amounts in order to sustain and increase
our revenues, since we expect customer adoption rates at financial institutions
to be small in the early stages of the license period. We expect that revenue
under most of our license agreements will depend on the number of monthly
subscribers to these services. To stimulate consumer adoption of these services,
we will be incurring upfront implementation costs to enable our customers to
market these services more quickly.
We have not yet integrated public key infrastructure (PKI) into our
solution, and if we fail to do so, we may be competitively disadvantaged. Lack
of consumer confidence in the security of online financial transactions could
limit adoption of our solution. We expect that the use of PKI, an emerging
technology which facilitates user identity authentication and non-repudiation of
transactions, will be used by financial institutions' customers and by our
competitors. Consumers will not adopt online financial services if they are not
confident that financial transactions over the Internet can be undertaken
securely and confidentially. Although there is security technology currently
available for online transactions, many Internet users do not use the Internet
for commercial transactions because of continued security concerns.
SUBSEQUENT EVENTS AND OUTLOOK
We completed our initial public offering on February 2, 2000, and we
anticipate that the net proceeds from this offering and the contemporaneous
exercising of the underwriters' overallotment option, which totaled
approximately $166.8 million, will be sufficient to cover all our cash flow
needs for the year 2000.
In February and March 2000 we announced a number of strategic alliances:
Motorola signed a Memorandum of Understanding with us to develop world-class
wireless financial solutions to help meet the growing demand for high-value,
secure financial transactions. Under the terms of the MOU, Motorola states that
it plans to enable our company to deploy our financial software applications in
a variety of Internet-enabled Motorola wireless devices, expanding the customer
reach of financial institutions working with our company. We also plan to work
together to identify and create solutions that meet the ongoing needs of
financial institutions and network operators. Additionally, Motorola has
purchased an equity stake in our company in our recent IPO.
11
<PAGE>
Ericsson has signed a Memorandum of Understanding with us to create a mobile
e-commerce solution based on our Financial Services Platform. We will
collaborate with Ericsson on devices, wireless infrastructure and standards, and
secure payment between financial institutions, merchants and consumers. The deal
will enable us to deliver on our promise of speed to market and a complete
solution for financial institutions' mobile e-commerce needs.
Baltimore Technologies, a global leader in wireless e-security solutions,
announced the unveiling of a new partner program to extend e-security to mobile
transactions. We have joined the Telepathy initiative that Baltimore has
established to provide its partners and customers with complete wireless
e-security solutions accelerating the adoption of mobile commerce worldwide.
This reinforces our goal of working with advanced software security providers to
ensure the integrity of our Financial Services Platform.
We are in the process of establishing our application hosting services, and
have chosen Exodus Communications, a leader in complex Internet hosting and
managed services, to host our Internet operations. By working with Exodus, we
will be able to offer customers the advantage of a speedier time-to-market and
increased cost-effectiveness by reducing or eliminating the complexity of
setting up the host environment for our Financial Services Platform.
We have entered into an agreement with MasterCard International to develop
and deliver global infrastructure software solutions for conducting payment
transactions using mobile phones, personal digital assistants (PDAs) and other
Internet-enabled devices. With the development of these technologies,
MasterCard's member financial institutions worldwide will be able to use our
technology to extend highly secure payment capabilities to customers who can
make purchases or pay bills using wireless devices.
We have entered into an agreement to acquire ezlogin.com, a leading provider
of Internet infrastructure tools for user-driven personalization. The
acquisition is subject to customary closing conditions, and if those conditions
are satisfied, the acquisition is likely to be completed by the end of the
second quarter of 2000. On closing, we will acquire all of the outstanding
shares of ezlogin.com in exchange for approximately 888,934 of our common
shares.
In March 2000, we acquired Internet messaging gateway developer Yrless
Internet Corporation of Oakville, Ontario. Yrless' software will help speed-up
deployment of our Financial Services Platform. The aggregate purchase
consideration is approximately U.S.$5.8 million, payable over three years.
Yrless Internet Corporation developed the YMG-2000 -- a fully scalable,
platform-independent short messaging service (SMS) gateway for wireless
carriers. The YMG-2000 product is licensed by Bell Mobility, Telus Mobility, and
U.S. satellite network provider ORBCOMM Global.
Our objective remains that of becoming the leading provider of an Internet
infrastructure solution for the secure delivery of services using a broad range
of Internet-enabled devices.
In 2000, we will continue to invest in our research and development
initiatives, and sales and marketing activities, in order to manage our growth
effectively and to expand our operational and customer support systems
worldwide.
We remain committed to our strategies to:
- Focus initially on leading financial institutions
- Accelerate adoption of our solution by consumers worldwide
- Accelerate adoption of our solution by financial institutions
- Expand the functionality of our platform
- Pursue selective acquisitions of companies and technologies to expand our
capabilities; and
- Adapt our platform for other sectors in other industries such as
insurance, sales force management and logistics.
12
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements and all of the
information included in this annual report have been prepared by and are the
responsibility of management and the Board of Directors of the Company. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and reflect management's best estimates
and judgements based on currently available information. The significant
accounting policies which management believes are appropriate for the Company
are described in note 2 to the consolidated financial statements.
The Company has developed and maintains an appropriate system of internal
controls in order to ensure, on a reasonable and cost-effective basis, that
relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and approving the
consolidated financial statements and overseeing management's performance of its
financial reporting responsibilities. The Board has appointed an Audit Committee
comprised of three Directors.
The Audit Committee reviews the financial statements, the adequacy of
internal controls, the audit process and financial reporting with management and
the external auditors. The Audit Committee reports to the Directors prior to the
approval of the audited financial statements for publication.
KPMG LLP have been appointed as external auditors to perform an audit of the
consolidated financial statements in accordance with generally accepted auditing
standards to enable them to express to the shareholders their opinion on the
consolidated financial statements.
/s/ Gregory Wolfond /s/ Karen Basian
GREGORY WOLFOND KAREN BASIAN
Chairman and Chief Executive Officer Chief Financial Officer
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of 724 Solutions Inc. as at
December 31, 1999 and 1998 and the consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles differ in some respects
from those applicable in the United States (note 11).
/s/ KPMG LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 3,2000
13
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31 1999 1998
- - ----------- -------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 65,287 $ 2,976
Accounts receivable, net of allowance for doubtful accounts
of nil (1998-nil)......................................... 3,121 35
Prepaid expenses and other receivables (note 3)............. 1,368 21
-------- -------
Total current assets........................................ 69,776 3,032
Capital assets (note 4)..................................... 2,366 860
Deferred charges............................................ 1,100 --
-------- -------
Total assets................................................ $ 73,242 $ 3,892
-------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................ $ 1,982 $ 236
Accrued liabilities......................................... 2,967 463
Deferred revenue, net of deferred stock-based compensation
of $248 (1998-$420)....................................... 6,125 --
-------- -------
Total current liabilities................................... 11,074 699
-------- -------
SHAREHOLDERS' EQUITY (note 5)
Unlimited number of common shares authorized;
29,402,426 common shares issued and outstanding
(1998 -- 11,428,570)...................................... 84,762 7,752
Deferred stock-based compensation........................... (5,909) (1,705)
Accumulated deficit......................................... (16,685) (2,854)
-------- -------
Total shareholders' equity.................................. 62,168 3,193
-------- -------
Total liabilities and shareholders' equity.................. $ 73,242 $ 3,892
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
Approved by the Board of Directors:
/s/ Gregory Wolfond /s/ Kerry McLellan
GREGORY WOLFOND KERRY MCLELLAN
Director Director
14
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
REVENUE
Software development (note 9)............................... $ 1,697 $ 1,678
Less: Stock-based compensation related to software
development (notes 5 and 9)............................... (1,644) (1,395)
Services.................................................... 1,169 208
-------- -------
Net revenue................................................. 1,222 491
OPERATING EXPENSES
Cost of services revenue.................................... 1,890 61
Research and development.................................... 7,536 2,277
Sales and marketing......................................... 2,688 412
General and administrative.................................. 3,983 547
-------- -------
Total operating expenses.................................... 16,097 3,297
-------- -------
Income (loss) from operations............................... (14,875) (2,806)
Interest income............................................. 1,044 107
-------- -------
Net income (loss)........................................... $(13,831) $(2,699)
-------- -------
Basic and diluted net income (loss) per share $ (0.82) $ (0.47)
Shares used in computing basic and diluted net income (loss)
per share (in thousands).................................. 16,887 5,784
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFERRED
STOCK-BASED
DEFERRED COMPENSATION
STOCK-BASED RELATED TO
COMMON SHARES COMPENSATION SOFTWARE TOTAL
---------------------- RELATED TO DEVELOPMENT ACCUMULATED SHAREHOLDERS'
YEARS ENDED DECEMBER 31, 1999 AND 1998 NUMBER AMOUNT STOCK OPTIONS REVENUE DEFICIT EQUITY
- - -------------------------------------- ----------- -------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 4,000,000 $ 1,443 $ -- $ -- $ (155) $ 1,288
Net income (loss)................... -- -- -- -- (2,699) (2,699)
Deferred stock-based compensation... -- 414 (414) (3,287) -- (3,287)
Amortization of deferred stock-based
compensation...................... -- -- 181 -- -- 181
Allocation of deferred stock-based
compensation to software development
revenue and deferred revenue...... -- -- -- 1,815 -- 1,815
Issuance on exercise of options..... 4,000,000 1,296 -- -- -- 1,296
Issuance of common shares........... 3,428,570 4,599 -- -- -- 4,599
----------- -------- ------- ------- -------- -------
BALANCES, DECEMBER 31, 1998......... 11,428,570 7,752 (233) (1,472) (2,854) 3,193
Net income (loss)................... -- -- -- -- (13,831) (13,831)
Deferred stock-based compensation... -- 5,841 (5,841) -- -- --
Amortization of deferred stock-based
compensation...................... -- -- 165 -- -- 165
Allocation of deferred stock-based
compensation to software development
revenue and deferred revenue...... -- -- -- 1,472 -- 1,472
Issuance of common shares........... 17,973,856 71,169 -- -- -- 71,169
----------- ------- ------- ------- -------- -------
BALANCES, DECEMBER 31, 1999......... $29,402,426 $84,762 $(5,909) $ -- $(16,685) $62,168
=========== ======= ======= ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------
1999 1998
-------- -------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN)
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income (loss)........................................... $(13,831) $(2,699)
Depreciation and amortization............................... 752 88
Stock-based compensation.................................... 1,809 1,576
Change in operating assets and liabilities
Accounts receivable....................................... (3,086) (34)
Prepaid expenses and other receivables.................... (1,347) (21)
Accounts payable.......................................... 1,746 213
Accrued liabilities....................................... 2,504 453
Deferred revenue.......................................... 5,953 420
-------- -------
Net cash used in operating activities....................... (5,500) (4)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares................................... 71,169 2,608
Deferred charges............................................ (1,100) --
-------- -------
Net cash provided by financing activities................... 70,069 2,608
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets.................................. (2,258) (927)
-------- -------
Net increase in cash and cash equivalents................... 62,311 1,677
Cash and cash equivalents at beginning of year.............. 2,976 1,299
-------- -------
Cash and cash equivalents at end of year (note 2(b))........ $ 65,287 $ 2,976
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tabular information in thousands of U.S. dollars unless otherwise
noted, except per share amounts)
1. Organization of the Company
The Company was established in July 1997 to conceive, design and deliver an
Internet infrastructure solution that enables financial institutions to deliver
financial information and services using a broad range of Internet-enabled
devices. The Company's technology may be adapted for use by other types of
online merchants and for other applications.
2. Significant Accounting Policies
These financial statements are stated in U.S. dollars, except as otherwise
noted. They have been prepared in accordance with Canadian generally accepted
accounting principles which, except as disclosed in note 11, conform, in all
material respects, with U.S. generally accepted accounting principles.
(a) Consolidation
These consolidated financial statements include the accounts of the Company,
its wholly owned Canadian subsidiary 724 Solutions SRL Holdco Inc., its wholly
owned U.S. subsidiary, 724 Solutions Corp., which was incorporated on
September 15, 1999, its wholly owned Barbados subsidiary, 724 Solutions
International SRL, which was incorporated on November 11, 1999 and its wholly
owned United Kingdom subsidiary, 724 Solutions (UK) Ltd., which was incorporated
on November 25, 1999. Intercompany transactions and balances are eliminated on
consolidation.
(b) Cash and Cash Equivalents
Cash consists of deposits with major financial institutions. Cash
equivalents consist of short-term deposits and high-grade commercial paper with
an original maturity of three months or less at the date of purchase. As at
December 31, 1999, cash equivalents accounted for approximately 95% of the cash
and cash equivalents balance and consisted of 80% in short-term deposits and 15%
in investments in 30-day commercial paper.
(c) Financial Instruments and Concentration of Credit Risk
Financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities. The Company determines the
fair values of its financial instruments based on quoted market values or
discounted cash flow analyses. Unless otherwise indicated, the fair values of
financial assets and financial liabilities approximate their recorded amounts.
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. Cash and cash equivalents consist primarily of deposits with major
commercial banks and high-grade commercial paper, the maturities of which are
three months or less from the date of purchase. The Company performs periodic
credit evaluations of the financial condition of its customers. Allowances are
maintained for potential credit losses consistent with the credit risk of
specific customers.
(d) Revenue Recognition
The Company's revenue consists of software development revenue and services
revenue. The software development revenue was earned under a fixed fee contract
with the Bank of Montreal, which entitled Bank of Montreal to a worldwide
perpetual license for all technology developed, on a best efforts basis, over
the term of the contract. This revenue has been recognized ratably over the term
of the contract. Services revenue includes implementation and customer service
revenue earned on a time and materials basis.
18
<PAGE>
In the future, the Company's revenue will primarily be derived from (i) the
licensing of its product and (ii) the provision of related services, including
installation, integration, training and maintenance and support. Product revenue
will be recognized when a contract with a customer has been executed, delivery
and acceptance have occurred and the collection of the related receivables is
deemed probable by management. Services revenue will be recognized as the
services are performed. Maintenance and support revenue paid in advance is
non-refundable and is recognized ratably over the term of the agreement, which
is typically 12 months. Software development, product and services revenue that
have been prepaid but do not yet qualify for recognition as revenue under the
Company's revenue recognition policy are reflected as deferred revenue on the
Company's balance sheet.
(e) Research and Development Expenses
Costs related to research, design and development of software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which generally occurs upon completion of a working model, and
ending when a product is available for general release to customers. To date,
completing a working model of the Company's product and the general release of
the product have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
(f) Investment Tax Credits
The Company is entitled to Canadian federal and provincial investment tax
credits which are earned as a percentage of eligible research and development
expenditures incurred in each taxation year.
Investment tax credits are accounted for as a reduction of the related
expenditure for items of a current nature and a reduction of the related asset
cost for items of a long-term nature, provided that the Company has reasonable
assurance that the tax credits will be realized.
(g) Stock-based Compensation
The Company uses the intrinsic value method to account for stock-based
compensation. As such, deferred stock-based compensation is recorded if, on the
date of grant, the current fair value of an underlying common share exceeds the
exercise price per share. Deferred stock-based compensation is recognized as an
expense over the vesting period of the option or as a reduction of revenue over
the term of the related revenue contract.
(h) Capital Assets
Capital assets are stated at cost, net of accumulated depreciation and
amortization, and are amortized over their estimated useful lives. Leasehold
improvements are recorded at cost and amortized over the lesser of their useful
lives or the term of the related lease. Expenditures for maintenance and repairs
have been charged to the statement of operations as incurred. Depreciation and
amortization are computed using the straight-line method as follows:
<TABLE>
<S> <C>
Computer equipment 3 years
Computer software 1 year
Office furniture and equipment 5 years
Leasehold improvements 5 years
</TABLE>
The Company regularly reviews the carrying values of its capital assets by
comparing the carrying amount of the asset to the expected future cash flows to
be generated by the asset. If the carrying value exceeds the amount recoverable,
a write-down is charged to the statement of operations.
19
<PAGE>
(i) Deferred Charge
Charges consisting primarily of professional fees and the external direct
costs related to the initial public offering (note 12) have been deferred and
will be offset against share capital upon the completion of the initial public
offering.
(j) Currency Translation
Effective July 31, 1999, the U.S. dollar became the functional currency of
the Company. This change resulted from the increased significance of U.S. dollar
denominated revenue and expenditures in relation to the Company's Canadian
dollar denominated transactions. In addition, the Company's recent issuances of
common shares have been primarily denominated in U.S. dollars. Exchange gains
and losses resulting from transactions denominated in currencies other than U.S.
dollars are included in the results of operations for the period.
Prior to July 31, 1999, the functional currency of the Company was the
Canadian dollar. Accordingly, monetary assets and liabilities of the Company
that were denominated in foreign currencies were translated into Canadian
dollars at the exchange rate prevailing at the balance sheet date. Transactions
included in operations were translated at the average rate for the period.
Exchange gains and losses resulting from the translation of these amounts were
reflected in the statement of operations in the period in which they occurred.
(k) Income Taxes
The Company provides for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying value of existing assets and liabilities and their respective
tax basis and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting year. Actual
results could differ from those estimates.
3. Prepaid Expenses and Other Receivables
Included in the December 31, 1999 prepaid expenses and other receivables
balance is an advance of $250,000 made by the Company to a third party vendor
for future services. Under the terms of the agreement, the Company has been
granted a warrant to acquire a one-third interest in the third party vendor at a
price of $750,000. The third party vendor is a privately held Canadian company
in the business of developing directional mapping software and providing online
directional services, mapping services and spatial relational search services to
its customers. The warrant expires on March 10, 2000.
20
<PAGE>
4. Capital Assets
Capital assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computer equipment $1,499 $356
Computer software 500 200
Office furniture and equipment 453 172
Leasehold improvements 754 220
------ ----
3,206 948
Less accumulated depreciation and amortization 840 88
------ ----
$2,366 $860
</TABLE>
5. Shareholders' Equity
(a) Common Share Issuances
In September 1997, the Company issued 3,999,800 common shares and granted an
option to acquire an additional 4,000,000 common shares to the founder of the
Company for gross proceeds of Cdn. $1,999,900. The option was exercisable at the
holder's option at a price of $0.50 per common share. The option was exercised
in October 1998.
In April 1998, the Company issued to Bank of Montreal ("BMO") 1,000,000
common shares for gross proceeds of Cdn. $1,000,000 and granted BMO an option to
subscribe for 2,428,570 additional common shares for Cdn. $1,000,000,
exercisable upon BMO's extension of its technology licensing agreement with the
Company for a second year, and payment of the second year's technology licensing
fee. In October 1998, following BMO's extension of the technology license
agreement, BMO exercised the option to subscribe for 2,428,570 common shares for
Cdn. $1,000,000. On the date of exercise, the fair value of the 2,428,570 common
shares was determined to be Cdn. $6,071,425, resulting in a stock-based
compensation charge of Cdn. $5,071,425 (U.S. $3,286,943).
In June 1999, the Company issued 541,790 common shares to Bank of America
("BA") at a price of $3.69 per share for gross proceeds of $2,000,000 and BA
committed to subscribe for 541,790 additional common shares for $2,000,000. BA
subscribed for the 541,790 additional common shares in October 1999 for gross
proceeds of $2,000,000.
In August 1999, the Company issued to Citicorp Strategic Technology
Corporation 950,000 common shares at a price of $3.83 per share for gross
proceeds of $3,633,750. Citicorp Strategic Technology Corporation also
contracted at this time to subscribe for 5,450,000 additional common shares at a
price of $3.83 per share upon the satisfaction of certain conditions, including
the receipt of applicable regulatory approvals. The option was exercised in
October 1999 for gross proceeds of $20,846,250.
In August 1999, the Company granted BA an option to subscribe for 2,116,420
common shares at a price of $3.90 per share. The option was exercised in
October 1999 for cash proceeds of $8,243,446.
In August 1999, the Company issued 6,400,000 common shares to Sonera
Corporation for a price of $3.83 per share for gross proceeds of $24,480,000.
In October 1999, the Company completed three private placements for a total
issuance of 1,973,856 common shares at prices of $3.83 and $7.50 per share and
666,668 common shares issuable upon the exercise of a warrant exercisable at a
price of $7.50 per share for total proceeds of $10,000,000. This warrant expired
unexercised on January 14, 2000.
On December 30, 1999, all of the outstanding and reserved common shares were
split on a basis of two for one. The Company's share capital and earnings (loss)
per share have been restated to give effect to this share split.
21
<PAGE>
(b) Stock Option Plans
The Company currently has a Canadian stock option plan, a U.S. stock option
plan, and a new 2000 stock option plan (the "Plans"), each of which is intended
to attract, retain and motivate employees, officers, directors and consultants.
The stock option committee, in conjunction with the compensation committee,
determines, among other things, the eligibility of individuals to participate in
the plans and the term, vesting periods and the exercise price of options
granted under the plans. The Company has reserved an aggregate of 3,200,000
common shares for issuance under the Canadian and U.S. plans, and additional
2,000,000 common shares under the new 2000 plan.
The Canadian stock option plan was adopted in September 1997. All options
granted under the plan have a maximum term of 10 years and have an exercise
price per share of no less than the fair market value of the common shares on
the date of the option grant as determined by the Board of Directors or duly
authorized committee at the time of the grant. If an optionee's employment is
terminated without cause, the vested portion of any grant will remain
exercisable until its expiration date. In the event of termination for cause,
the vested portion of any grant will remain exercisable for a period of 30 days
after the date of termination. Unvested options will expire on termination
except for such portion thereof which would have vested within six months or
within the required statutory notice period following a termination without
cause, whichever is earlier, or within one year if termination is due to death
or disability. If a change of control of the Company occurs, all options become
immediately vested and exercisable.
The U.S. stock option plan was adopted in October 1999. The plan provides
for the grant of both incentive stock options and non-qualified stock options.
Incentive stock options granted under the plan have a maximum term of 10 years,
or five years in the case of incentive stock options granted to an employee who
owns common shares having more than 10% of the voting power of the Company. The
exercise price of incentive stock options is the fair market value of common
shares on the date of the grant, or 110% of the fair market value in the case of
an incentive stock option granted to an employee who owns common shares having
more than 10% of the voting power of the Company. Non-qualified stock options
granted under the plan have a maximum term of 10 years and an exercise price of
no less than 85% of the fair market value of the common shares on the date of
the grant, or 110% of the fair market value for those employees who own common
shares representing more than 10% of the voting power. Restricted shares granted
under the plan have a maximum term of 10 years and an exercise price of no less
than 85% of the fair market value of the common shares on the date of the grant,
or 100% of the fair market value in the case of restricted shares granted to an
employee who owns common shares having more than 10% of the voting power.
Under the Plans, the Company has the right to repurchase options from
optionees after termination of employment on certain terms.
The new 2000 stock option plan was adopted in December 1999 and is to
replace the Canadian and U.S. stock option plans upon completion of the
Company's IPO (note 12). The stock options granted under the Canadian and U.S.
stock option plans prior to the date of completion of the IPO, will continue to
be effective and governed by the terms of the plans under which they were
granted. The options granted under the 2000 plan will have a maximum term of
10 years and an exercise price no less than the fair market value of the common
shares on the date of the grant as determined by the Board of Directors or duly
authorized committee at the date of the grant. Options held by any person under
the new plan, together with any other options granted to that person may not at
any time exceed 5% of the aggregate number of common shares outstanding. If a
change of control of the Company occurs, all options granted under this plan
will become immediately vested and exercisable.
22
<PAGE>
A summary of the status of the Company's options under the Plans as at
December 31,1999, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING NUMBER OF
NUMBER OF CONTRACTUAL OPTIONS
EXERCISE PRICE OPTIONS LIFE (YEARS) EXERCISABLE
-------------- --------- ------------ -----------
<S> <C> <C> <C>
$0.34 1,604,000 8.2 1,000,660
$1.71 424,400 9.2 105,666
$3.75 258,460 9.5 131,600
$7.50 20,200 9.7 --
$10.00 569,870 9.9 --
--------- --- ---------
2,876,930 1,237,926
--------- --- ---------
</TABLE>
The following table summarizes the continuity of options issued under the
Plans:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,865,000 $0.49 400,000 $0.35
Granted 1,071,196 8.44 1,465,000 0.54
Cancelled (59,266) 3.42 -- --
--------- ----- --------- -----
Outstanding, end of year 2,876,930 $2.81 1,865,000 $0.49
--------- ----- --------- -----
Options exercisable, end of year 1,237,926 $0.72 625,166 $0.34
--------- ----- --------- -----
</TABLE>
The Company recorded deferred stock-based compensation relating to options
issued under the Company's Plans amounting to $5,841,000 (1998 -- $414,000).
Amortization of deferred stock-based compensation amounted to $165,000
(1998 -- $181,000) and has been recorded as a research and development expense.
6. Income Taxes
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to net income (loss) before income taxes. The
sources and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Basic rate applied to net income (loss)
before provision for income taxes $(6,168) $(1,201)
Adjustments resulting from:
Scientific research expenses not deducted for tax 2,285 333
Foreign losses affected at lower rates 991 --
Stock-based compensation not deducted for tax 789 701
Other 218 167
------- -------
(1,885) --
Unrecognized benefit of net operating
losses carried forward 1,885 --
------- -------
Income taxes $ -- $ --
</TABLE>
23
<PAGE>
Significant components of the Company's future tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Research and development expenses deferred for income tax
purposes................................................ $3,067 $244
Net operating losses carried forward...................... 1,909 24
------ ----
Future tax asset.......................................... 4,976 268
Less:
Future tax liability related to capital assets............ 420 --
Valuation allowance....................................... 4,556 268
------ ----
$-- $--
</TABLE>
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income, uncertainties related to the industry in which
the Company operates, and tax planning strategies in making this assessment. In
order to fully realize the future tax assets, the Company will need to generate
future taxable income of approximately $6.5 million prior to the expiration of
the net operating losses carried forward in the years 2003 to 2005. Due to the
uncertainties related to the industry in which the Company operates, the tax
benefit of the above carried forward amounts have been completely offset by a
valuation allowance.
7. Lease Commitments
Future minimum lease payments under non-cancellable operating leases for
premises and equipment are as follows:
<TABLE>
<S> <C>
2000 $1,311
2001 1,231
2002 1,059
2003 1,059
2004 924
2005 and thereafter 343
------
$5,927
</TABLE>
Rent expense for 1999 was $590,000 (1998 -- $107,000). The Company is also
responsible for certain common area costs at its various leased premises.
8. Segmented Information
The Company operates in a single reportable operating segment, that is, the
design and delivery of an Internet infrastructure platform that enables
financial institutions to deliver financial information and services to a range
of Internet-enabled devices. The single reportable operating segment derives its
revenue from the sale of software and related services. As at December 31, 1999,
significantly all of the assets related to the Company's operations were located
in Canada. Net revenue is attributable to geographic location based on the
location of the customer, as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net revenue by geographic locations:
United States............................................. $1,135 $ --
Canada.................................................... 87 491
$1,222 $491
</TABLE>
24
<PAGE>
For the year ended December 31, 1999, three customers have accounted for 100% of
revenue. For the year ended December 31, 1998, one customer accounted for 100%
of revenue. At December 31, 1999, three customers accounted for 100% of the
accounts receivable balance.
9. Related Party Transactions
(a) On April 30,1998, the Company entered into a share subscription
agreement and a technology license agreement with BMO. Pursuant to the share
subscription agreement, on April 30, 1998, BMO subscribed for 1,000,000 of the
Company's common shares for Cdn. $1,000,000 and received an option to subscribe
for 2,428,570 additional common shares for Cdn. $1,000,000, exercisable in the
event that BMO extended its technology license agreement for a second year and
paid the second year's technology licensing fee. In October 1998, upon
exercising its right to extend the technology license agreement, BMO exercised
the option and subscribed for 2,428,570 shares for Cdn. $1,000,000. On the date
of exercise, the fair value of the 2,428,570 common shares was determined to be
Cdn. $6,071,425, resulting in a stock-based compensation charge related to
software development revenue of Cdn. $5,071,425 (U.S. $3,286,943).The
stock-based compensation is being attributed to the software development revenue
over the term of the technology license agreement in proportion to the revenue
recognized in the first and second years under the agreement. The excess of the
stock-based compensation over the accumulated allocation to software development
revenue has been netted against the related deferred revenue, with the balance
being recorded as deferred stock-based compensation in shareholders' equity. The
parties also agreed to a March 1999 payment date for the second year's licensing
fee to coincide with the commencement of the second year's term. As at
December 31, 1999, BMO owned approximately 11.7% of the Company's outstanding
common shares.
The BMO technology license agreement had an initial term of ten months
commencing on April 30, 1998. As noted above, BMO extended the term of the
technology license agreement for a second year and has the option to extend the
term for additional one-year periods thereafter. BMO has indicated it intends to
extend the agreement for a further year. The technology license agreement
provides for fixed annual license fees in the first two years of
Cdn. $3,000,000 in exchange for a worldwide perpetual license for all technology
existing at the commencement of the license period and all technology developed
during each term of the agreement. The annual license fees in the first two
technology licensing terms of the agreement were subject to refund to the extent
that the Company failed to meet certain spending commitments. As at
December 31, 1999, all spending commitments had been satisfied. Initially BMO
had a right to be the exclusive Canadian financial institution to which the
Company would license its technology. In November 1998, BMO agreed to waive this
right in return for a refund of a portion of its annual license fee, to a
maximum of Cdn. $700,000, to be calculated as a percentage of fees paid by other
Canadian financial institutions, if any, to license the Company's technology. To
December 31, 1999, no amounts have been subject to refund under this provision.
The Company has recognized the license fee for each of the first and second term
of the technology license on a straight-line basis over the term of the license.
Cdn. $700,000 of the second year's license fee, related to the aforementioned
refundability provision, has been deferred and will either be paid to BMO in
accordance with the terms of the agreement or recognized into income when the
commitment to such refund has expired.
25
<PAGE>
(b) On June 1, 1999, the Company entered into a subscription agreement with
BA and a technology licensing agreement with an affiliate of BA. Pursuant to the
subscription agreement BA subscribed for 541,790 common shares of the Company
for $2,000,000. The subscription agreement also stipulated that BA would
unconditionally subscribe for an additional 541,790 common shares on
February 1,2000 for $2,000,000. BA subscribed for the 541,790 additional common
shares in October 1999 as a result of the Company attracting additional equity
investors at that time. On August 2, 1999, an Option and Subscription Amending
Agreement was entered into which granted BA the option to acquire a further
2,116,420 common shares for an aggregate subscription price of $8,243,456. BA
exercised this option in October 1999.
The technology license agreement provides for a fixed license fee to be paid
to the Company over a 20-month period commencing on June 1, 1999, in exchange
for the delivery of specific products over the term of the agreement and for a
license of all technology developed during the license period. If these products
are not delivered, a portion of the license fee payable under this arrangement
is refundable. The Company has recorded the payments received under this
agreement as deferred revenue and will commence to recognize the revenue under
this contract upon the delivery of the products specified in the technology
agreement. As at December 31, 1999, BA owned approximately 10.9% of the
Company's out-standing common shares.
(c) On September 28, 1999 and October 19, 1999, the Company entered into a
technology license agreement and share subscription agreement, respectively,
with Wells Fargo Bank, N.A. ("WF"). Pursuant to the share subscription
agreement, WF subscribed for 784,374 common shares of the Company for
$3,000,000. As at December 31, 1999, WF owned approximately 2.7% of the
Company's outstanding common shares.
The technology license agreement pr vides for an annual license fee to be
paid by WF over the next four years, in exchange for the delivery of a specific
software product over the term of the agreement. In addition, the technology
license agreement also provides for a variable monthly user fee for certain
products that are also deliverable under the agreement, if licensed by WF. The
variable monthly user fee will be calculated on the number of users and will be
subject to certain maximum and minimum amounts. The Company has recorded the
payments received under the agreement as deferred revenue and will commence to
recognize this revenue under this contract upon the delivery of the products
specified in the technology agreement. The technology license agreement may be
terminated at the start of the third year by paying the Company a termination
fee. The Company has also contracted with WF to provide consulting fees at
commercial rates.
These technology license agreements are extendible annually at the option of
the licensees. In addition, the Company has agreed to provide related support
and maintenance services to the licensees at commercial rates.
The following table sets out the balances and transactions with the
licensees relating to these agreements:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Related party balances:
Accounts receivable, net of allowance for doubtful $3,121 $ 34
accounts................................................
Deferred revenue, net of deferred stock-based compensation 6,125 --
of $248 (1998 -- $420)..................................
------ ----
Related party transactions:
Net revenue:
Software development...................................... $ 53 $283
Services.................................................. 1,169 208
</TABLE>
26
<PAGE>
(d) In August 1999, the Company entered into a two-year consulting agreement
with a director of the Company providing for a monthly consulting fee of
$34,000, together with options, granted under the option plan, to purchase
48,000 common shares of the Company at an exercise price of $3.75 per share.
10. Earnings (Loss) Per Share
Due to the net loss for all periods presented, all potential common shares
outstanding are considered anti-dilutive and are excluded from the calculation
of diluted loss per share. Common shares that could potentially dilute basic
loss per share in the future that were not included in the computation of
diluted loss per share, because to do so would have been anti-dilutive, for the
year ended December 31, 1999, amounted to 18,184,665.
11. Canadian and U.S. Accounting Policy Differences
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles ("GAAP") as applied in Canada,
which conform in all material respects with generally accepted accounting
principles in the U.S.
Supplemental disclosures required under U.S. GAAP include the following:
(a) Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which establishes standards for
reporting and presentation of comprehensive income. This standard defines
comprehensive income as the changes in equity of an enterprise except those
resulting from stockholder transactions. Comprehensive net income (loss) for the
years ended December 31, 1999 and 1998, equalled the net income (loss) for these
years.
(b) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133, as recently amended, is effective for fiscal years beginning after
June 15, 2000. Management believes the adoption of SFAS No. 133 will not have a
material effect on the Company's financial position or results of operations.
The CICA issued new pronouncements entitled "Cash Flow Statements" and
"Income Taxes" which the Company adopted for the year ended December 31, 1999.
The impact of the adoption of these standards did not have a material impact on
the Company's financial statements.
27
<PAGE>
The CICA has also issued new pronouncements entitled "Employee Future
Benefits" which the Company is required to adopt in the year ending
December 31, 2000. The Company is in the process of determining the impact of
these pronouncements on its consolidated financial statements.
(c) SFAS 123 Pro Forma Information
SFAS No. 123, "Employee Stock Compensation," encourages, but does not
require, the recording of compensation costs related to stock options valued at
fair value. For companies choosing not to adopt the fair value measurement for
stock-based compensation, the pronouncement requires the disclosure of pr forma
net income and net income (loss) per share information as if the Company had
accounted for its stock options issued in 1997 through 1999 under the fair value
method. The Company has elected not to adopt the recording of compensation cost
for stock options at fair value and, accordingly, a summary of the pro forma
impact on the statement of operations is presented in the table below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income (loss)..................................... $(13,831) $(2,699)
Compensation expense related to the fair value of
stock options....................................... (362) (23)
Pro forma net income (loss)........................... $(14,193) $(2,722)
Pro forma net income (loss) per share................. $ (0.84) $ (0.47)
</TABLE>
The fair value of each option granted has been estimated at the date of
grant using the minimal value method and by applying the following assumptions:
weighted-average risk free interest rate of 4.9% for the year ended
December 31, 1999 (1998 -- 5.1%).
The Company has assumed no forfeiture rate, as adjustments for actual
forfeitures are made in the year they occur. The weighted-average grant-date
fair value of options issued in the year ended December 31, 1999 was $3.26 per
option (1998 -- $0.13).
12. Subsequent Events
In February 2000, the Company issued 6,900,000 common shares through an
initial public offering at $26.00 per common share on the NASDAQ National Market
and The Toronto Stock Exchange for net proceeds of approximately $166,806,000.
28
<PAGE>
<TABLE>
<S> <C> <C>
BOARD OF DIRECTORS
GREG WOLFOND JIM DIXON OFFICERS
Chairman and Chief Executive Group Executive, Bank KAREN BASIAN
Officer of America Technology Chief Financial Officer
Toronto, Ontario and Operations
Atlanta, Georgia MINA WALLACE
CHRISTOPHER ERICKSON Executive Vice President
President MARTIN STEIN Field Operations
Toronto, Ontario President, Sonoma Mountain
Ventures L.L.C. ALISTAIR RENNIE
ANDRE BOYSEN San Francisco, California Senior Vice President
Chief Technology Officer Marketing
Toronto, Ontario HARRI VATANEN
President, Sonera SmarTrust and Senior DAVID PASIEKA
KERRY MCLELLAN Vice President, Sonera Corporation Senior Vice President
Chief Operating Officer London, U.K. Applications Hosting
Westfield, New Brunswick
ALAN YOUNG ROGER HORTON
LLOYD DARLINGTON Vice President, Direct Access and Senior Vice President
Chief Technology Officer and Distribution Technologies, e-Citi Application Development
General Manager, New Canaan, Connecticut
Bank of Montreal
Toronto, Ontario
CORPORATE INFORMATION U.S.A. U.K. & EUROPE
INTERNET SITE 724 Solutions Corp. 724 Solutions (UK) Ltd.
www.724.com San Francisco No. 1 Poultry, 2nd Floor
1 Market, Steuart Tower 1475 London, England EC2R 8JR
CANADA (HQ) San Francisco, CA, USA 94105 Telephone 44 207 643 2245
724 Solutions Inc. Telephone (415) 615-0724 Fax 44 207 643 2682
4101 Yonge Street Fax (415) 615-0195
Suite 702 AUSTRALIA
Toronto, Ontario JAPAN 724 Solutions (UK) Ltd.
Canada M2P 1N6 724 Solutions (UK) Ltd. Level 20, Tower 2, Darling Park
Telephone (416) 226-2900 Kamiyacho Mori Bldg. 201 Sussex Street
Fax (416) 226-4456 14th Floor, 4-3-20 Toranomon Sydney 2000 Australia
Minatu-ku, Tokyo, Japan Telephone (612) 9006-1160
Telephone 81 3 (5404) 3408 Fax (612) 9006-1430
Fax 81 3 (5404) 3571
Mobile 090-9316-9948
SHAREHOLDER INFORMATION
ANNUAL MEETING TRANSFER AGENT SHARE INFORMATION
The Annual and Special Montreal Trust, Toronto Market Listings [Symbol]
Meeting of Shareholders of Toronto Stock Exchange [SVN]
724 Solutions Inc. will be held AUDITORS NASDAQ National Market
on May 31, 2000 at 11:00 am, KPMG LLP, Toronto [SVNX]
at the News Theatre,
98 The Esplanade, INVESTOR AND PUBLIC RELATIONS
Toronto, Ontario, Canada. Ray McManus, Toronto
[email protected]
</TABLE>
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