<PAGE>
FILE NO. 333-90143
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
724 SOLUTIONS INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO 7372 INAPPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4101 YONGE STREET, SUITE 702
TORONTO, ONTARIO M2P IN6
(416) 226-2900
(Address and telephone number of Registrant's principal executive offices)
CT CORPORATION SYSTEM
111 8TH AVENUE
NEW YORK, NEW YORK 10011
(212) 247-2882
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
ROBERT S. TOWNSEND, ESQ. BRIAN LUDMER, ESQ. MARC M. ROSSELL, ESQ. DEBORAH ALEXANDER, ESQ.
MARK L. MANDEL, ESQ. Goodman Phillips & Shearman & Sterling Osler, Hoskin &
Morrison & Foerster LLP Vineberg 599 Lexington Avenue Harcourt LLP
1290 Avenue of the 250 Yonge Street New York, New York 10022 1 First Canadian Place
Americas Suite 2400 (212) 848-4000 P.O. Box 50
New York, New York Toronto, Ontario M5B 2M6 Toronto, Ontario M5X 1B8
10104-0012 (416) 979-2211 (416) 362-2111
(212) 468-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement includes two forms of prospectuses, one which
will be used for offers in the U.S., and one that will be used for offers in
Canada. The alternative pages for the Canadian prospectus are set forth prior to
Part II of this Registration Statement.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 12, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
6,000,000 Shares
[724 SOLUTIONS LOGO]
Common Shares
---------
We are offering common shares in the United States through a
syndicate of U.S. underwriters and common shares in Canada through a
syndicate of Canadian underwriters. The underwriters have an option to purchase
a maximum of 900,000 additional common shares to cover over-allotments of common
shares.
Prior to this offering, there has been no public market for our common
shares. The initial public offering price is expected to be between $11.00 and
$13.00 per common share. We have applied to list our common shares on The Nasdaq
Stock Market's National Market under the symbol "SVNX" and on The Toronto Stock
Exchange under the symbol "SVN".
Investing in our common shares involves risks. See "Risk Factors" starting
on page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions 724 Solutions
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total......................................... $ $ $
</TABLE>
Delivery of the common shares will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Robertson Stephens
Thomas Weisel Partners LLC
The date of this prospectus is , 2000.
<PAGE>
[GATEFOLD ARTWORK]
[The gatefold artwork bears a caption stating, "724 Solutions provides an
Internet infrastructure solution to financial institutions that enables them to
offer personalized and secure on-line banking and brokerage services across a
wide range of Internet-enabled wireless and consumer electronic devices." The
gatefold artwork contains a diagram captioned "724 Solutions Financial Services
Platform." The diagram illustrates that different types of Internet-enabled
consumer devices (a PalmPilot connected organizer, a cellular phone, a
television, a pager and a PC) connect to wireless, cable and wireline networks.
These networks connect through the Internet to 724's network and device gateway.
724's network and device gateway connects to 724's services infrastructure,
which provides consumer applications enabling e-Banking, e-Brokerage and
e-Commerce services. The services infrastructure connects to 724's transaction
and content gateway. The transaction and content gateway connects to providers
of informational content, financial institutions and merchants. Security is
provided between each of the points in the system. Beneath the diagram are four
graphic displays of financial services enabled by 724's solution, including (i)
bill payment and account information, (ii) detailed quotes, (iii) integrated
content and (iv) trading and personalized alerts.
An additional page of artwork includes 724's logo, together with the caption
"Financial Services in Motion." This page contains two photos, one of a woman
holding a cellular phone, and one of a man holding with a cellular phone. Set
forth next to each of these photos are additional graphic displays of services
enabled by 724's solution.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 19
GENERAL INFORMATION IN PROSPECTUS..... 19
USE OF PROCEEDS....................... 20
DIVIDEND POLICY....................... 20
EXCHANGE RATES........................ 20
CAPITALIZATION........................ 21
DILUTION.............................. 22
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
BUSINESS.............................. 32
MANAGEMENT............................ 45
CERTAIN TRANSACTIONS.................. 52
PRINCIPAL SHAREHOLDERS................ 55
DESCRIPTION OF SHARE CAPITAL.......... 56
SHARES ELIGIBLE FOR FUTURE SALE....... 57
INCOME TAX CONSEQUENCES............... 59
UNDERWRITING.......................... 63
LEGAL MATTERS......................... 66
EXPERTS............................... 66
WHERE YOU CAN FIND MORE INFORMATION... 66
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON SHARES. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES.
724 SOLUTIONS INC.
We provide an Internet infrastructure solution to financial institutions
that enables them to offer personalized and secure on-line banking, brokerage
and e-commerce services across a wide range of Internet-enabled wireless and
consumer electronic devices. Our solution currently enables consumers to access
on-line banking and brokerage services through network service providers using
digital mobile phones, personal digital assistants, two-way pagers and personal
computers. With critical security features built in, our solution can be quickly
implemented and integrated with existing systems, and scaled or expanded to
accommodate future growth. Using our platform, financial institutions may build
on their consumers' trust and provide new levels of service in an easy to use,
personalized way.
The emergence of the Internet is having a significant effect on the delivery
of financial services to consumers. As a group, on-line consumers represent an
affluent and important market segment. These consumers are increasingly using
new methods, including wireless technologies, to access the Internet. The
convergence of the Internet and digital wireless technologies presents new
opportunities for financial institutions. Using our platform, financial
institutions can differentiate their services to retain and strengthen their
existing customer relationships and attract new customers.
Our objective is to become the leading provider of Internet infrastructure
solutions for the secure delivery of transaction and information services to
consumers. To differentiate us from our competitors, our strategy is to:
- FOCUS INITIALLY ON LEADING FINANCIAL INSTITUTIONS: Our target market
includes the largest financial institutions worldwide. Currently, Bank of
America, Citigroup, Bank of Montreal and Wells Fargo, four of our
shareholders, are in various stages of implementing our solution on a
non-exclusive basis. These institutions have a worldwide customer base
with approximately 152 million customer relationships.
- ACCELERATE ADOPTION OF OUR SOLUTION BY CONSUMERS WORLDWIDE: Dataquest
projects that there will be 828 million digital wireless subscribers
worldwide by the end of 2003. To enable our customers to offer their
services to these subscribers, we are currently working with network
service providers including Bell Mobility and Sprint to provide broad
geographic coverage. We are also working with device manufacturers
including Ericsson, Motorola, Neopoint, Nokia, Palm Computing, Qualcomm
and Research In Motion to support a wide range of Internet-enabled
devices. We intend to deliver a consistent and compelling consumer
experience worldwide across a broad range of networks and devices.
- ACCELERATE ADOPTION OF OUR SOLUTION BY FINANCIAL INSTITUTIONS: In order to
enable rapid implementation of our platform, we are working with system
integrators, including Deloitte & Touche. In the future, we intend to
provide an application hosting service that will enable financial
institutions to operate the software and other components of our solution
on equipment maintained by us or by one or more third parties. We are
currently building the capacity to provide this service.
- EXPAND THE FUNCTIONALITY OF OUR PLATFORM: We work with technology
providers such as Certicom and our partner Sonera to provide robust
security, and with Sun Microsystems to provide highly scalable and
manageable features for our platform. Our customers do not currently offer
e-commerce services based upon our solution, but have advised us that they
expect to begin to do so in the year 2000. We intend to continue to
introduce new services, applications and support for additional
Internet-enabled devices, including set-top boxes that permit television
sets to display electronic data, and game consoles.
4
<PAGE>
- PURSUE ACQUISITIONS OF COMPANIES AND TECHNOLOGIES: We intend to pursue
acquisitions of technologies and service capabilities that will enable us
to accelerate the introduction of new and innovative products and
services.
- ADAPT OUR PLATFORM FOR OTHER INDUSTRY SECTORS: Key elements of our
platform and strategy are transferable to other industries, such as
insurance, sales force management and logistics. We intend to address
these opportunities after establishing our position as the leading
provider of an Internet infrastructure solution for the on-line financial
services sector.
We believe that our solution benefits our customers and the companies with
which we have strategic relationships by enabling the delivery of differentiated
on-line financial services. These services increase consumer loyalty and drive
wireless airtime usage, consumer electronic device sales and the purchase of
other products and services.
In May 1999, Bank of Montreal conducted a market trial in which banking and
brokerage applications using our solution were offered to approximately 350
users. Bank of Montreal has announced the success of its market trial and is
currently in the process of rolling out these services throughout Canada. The
initial term of our license agreement with Bank of Montreal will expire in
February 2000. Bank of Montreal has informed us that it intends to extend this
agreement for an additional one year term.
Our revenue was approximately $2.1 million during the nine months ended
September 30, 1999 and we incurred net losses during this period of
approximately $6.3 million.
We are incorporated under the laws of Ontario, Canada. Our principal
executive offices are located at 4101 Yonge Street, Suite 702, Toronto, Ontario,
M2P 1N6, and our telephone number is (416) 226-2900.
THE OFFERING
<TABLE>
<S> <C> <C>
Common shares offered
U.S. offering...................................... shares
Canadian offering.................................. shares
-----------------
Total:............................................... 6,000,000 shares
=================
</TABLE>
<TABLE>
<S> <C>
Common shares to be outstanding after
this offering...................................... 35,402,426 shares
Use of proceeds...................................... For general corporate purposes, including the
development of our application hosting
service, and potential acquisitions
Proposed Nasdaq National Market symbol............... SVNX
Proposed Toronto Stock Exchange symbol............... SVN
</TABLE>
The table above is based on common shares outstanding as of December 31,
1999 and excludes the following:
- outstanding options as of September 30, 1999 to purchase 2,211,594 common
shares under our stock option plans at a weighted average exercise price
of $0.88 per share;
- common shares issued upon the exercise of stock options after
September 30, 1999;
- 666,668 common shares issuable upon the exercise of a warrant having an
exercise price of $7.50 per share; and
- approximately 67,200 common shares issuable to one of our shareholders at
a purchase price of $7.50 per share upon exercise of a preemptive right if
the warrant described above is exercised.
--------------
All references to "$" or dollars in this prospectus refer to U.S. dollars
and all references to "Cdn.$" refer to Canadian dollars.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
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 of our consolidated financial statements. You should
read the following selected consolidated financial data with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes appearing elsewhere in this
prospectus. The consolidated statements of operations data for the period from
July 28, 1997 (inception) to December 31, 1997, for the year ended December 31,
1998 and for the nine months ended September 30, 1998 and 1999, and the
consolidated balance sheet data as of September 30, 1999, are derived from our
consolidated financial statements that have been audited by KPMG LLP,
Independent Auditors, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM ENDED
JULY 28, 1997 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED -------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
------------------- ------------------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Product................................... $ -- $ 1,678 $1,049 $ 1,314
Services.................................. -- 208 208 788
------ ------- ------ -------
Total revenue........................... -- 1,886 1,257 2,102
Cost of revenue............................. -- 61 61 819
------ ------- ------ -------
Gross profit................................ -- 1,825 1,196 1,283
Total operating expenses.................... 165 6,523 1,598 7,901
------ ------- ------ -------
Income (loss) from operations............... (165) (4,698) (402) (6,618)
Interest income............................. 10 107 69 341
------ ------- ------ -------
Net income (loss)........................... $ (155) $(4,591) $ (333) $(6,277)
====== ======= ====== =======
Basic and diluted net income (loss) per
share..................................... $(0.06) $ (0.79) $(0.07) $ (0.47)
====== ======= ====== =======
Shares used in computing basic and diluted
net income (loss) per share (in
thousands)................................ 2,752 5,784 4,564 13,301
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $28,044 $69,134 $134,430
Working capital............................................. 25,097 66,187 131,483
Total assets................................................ 32,444 73,534 138,830
Total shareholders' equity.................................. 26,734 67,824 133,120
</TABLE>
The pro forma numbers in the table above are adjusted to give effect to the
issuance of 10,082,066 common shares for aggregate proceeds of $41.1 million in
October 1999.
The pro forma as adjusted numbers in the table above are adjusted to give
effect to receipt of the net proceeds from the sale of 6,000,000 common shares
offered by us at the estimated initial public offering price of $12.00 per share
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by us. See also "Use of Proceeds," "Capitalization"
and "Underwriting."
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
BEFORE PURCHASING OUR COMMON SHARES. OUR MOST SIGNIFICANT RISKS AND
UNCERTAINTIES ARE DESCRIBED BELOW.
IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, OPERATING RESULTS AND
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF
OUR COMMON SHARES COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISK FACTORS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND WE EXPECT TO INCUR LOSSES IN THE FUTURE.
We have not been profitable since our inception. We incurred losses of
$155,000 for the period between July 28, 1997 and December 31, 1997,
$4.6 million for the year ended December 31, 1998 and $6.3 million for the nine
months ended September 30, 1999. As of September 30, 1999, we had an accumulated
deficit of $11.0 million. We expect to incur a loss of between $5.0 million and
$6.0 million for the three months ended December 31, 1999. We expect to continue
to incur losses in the near future and possibly longer. We anticipate that our
expenses will increase substantially in the foreseeable future as we establish
our application hosting service and continue to increase our research and
development, sales and marketing and general and administrative expenses. These
efforts may prove more expensive than we currently anticipate. We cannot predict
if we will ever achieve profitability and if we do, we may not be able to
sustain or increase our profitability.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND ITS FUTURE PROSPECTS.
Your evaluation of our business will be more difficult because of our
limited operating history. We were founded in July 1997 and services based on
our platform were first launched on a trial basis in May 1999 with our initial
licensee, Bank of Montreal. Because we are in an early stage of development, our
prospects are difficult to predict and may change rapidly. When making your
investment decision, you should consider the risks, expenses and difficulties
that we may encounter or incur as a young company in a new and rapidly evolving
market, including our substantial dependence on a single product with only
limited market acceptance to date and our need to manage expanding operations.
Our business strategy may not be successful, and we may not successfully address
these risks.
OUR RAPID GROWTH MAY STRAIN OUR RESOURCES AND HINDER OUR ABILITY TO IMPLEMENT
OUR BUSINESS STRATEGY.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our resources. Our ability to achieve
and maintain profitability will depend on our ability to manage our growth
effectively, to implement and expand operational and customer support systems
and to hire personnel worldwide. We may not be able to augment or improve
existing systems and controls or implement new systems and controls to respond
to any future growth. In addition, future growth may result in increased
responsibilities for our management personnel, which may limit their ability to
effectively manage our business.
WE ARE BUILDING THE CAPABILITY TO PROVIDE AN APPLICATION HOSTING SERVICE, AND IF
WE DO NOT SUCCESSFULLY IMPLEMENT THIS SERVICE WE MAY NOT ATTRACT OR RETAIN
CUSTOMERS.
Some of our existing customers require us, and some of our potential
customers will require us, to host and manage the server infrastructure and
software platform as part of the implementation of our solution. We may acquire
or partner with third parties to provide this service. We may also provide this
service by establishing application hosting facilities of our own, or through a
combination of these
7
<PAGE>
strategies. Regardless of the implementation strategy we pursue, providing the
service will require significant capital expenditures and other resources, and
we cannot assure you that we will be able to implement these services on an
effective, cost-efficient or timely basis. Because our experience is primarily
in the areas of developing and implementing our software solution, we do not
know what other difficulties we may encounter or risks we may be exposed to in
the establishment and operation of these facilities. If we cannot effectively
implement these services, we may lose our existing customers and may not attract
new customers.
TO DATE, ALL OF OUR CUSTOMERS HAVE ACQUIRED AN EQUITY INTEREST IN OUR COMPANY
AND IF WE DISCONTINUE THIS PRACTICE WE MAY NOT ATTRACT NEW CUSTOMERS.
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.
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.
BECAUSE ALL OF OUR CURRENT CUSTOMERS ARE SHAREHOLDERS IN OUR COMPANY, IF A
CUSTOMER CEASES TO LICENSE OUR TECHNOLOGY AND ALSO SELLS ITS SHARES IN OUR
COMPANY, THE MARKET PRICE OF OUR SHARES MAY DECLINE.
All of our current customers, or their affiliates, are shareholders in our
company. If any customer ceases to license our technology, our credibility in
the market may suffer which may impede our ability to attract new customers. In
addition, if a customer that switches to a competing technology also sells its
shares in our company, our credibility may further suffer and the market price
of our shares will likely decline.
WE HAVE A LENGTHY AND COMPLEX SALES CYCLE, WHICH COULD CAUSE THE DELAY OR LOSS
OF REVENUE AND INCREASE OUR EXPENSES.
Our sales efforts target large financial institutions worldwide, which
requires us to expend significant resources educating prospective customers
about the uses and benefits of our product. Because the purchase of our solution
is a significant decision for these institutions, our prospective customers
generally take a long time to evaluate our product. Our sales cycle typically
ranges from four to six months, although these cycles can be longer due to
significant delays over which we have little or no control. Our lengthy sales
cycle is due to many 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. As a result of our long sales cycle, it may take us
a substantial amount of time to generate revenue from our sales efforts. In
addition, any delay in selling our platform could lead our prospective customers
to find alternatives to our solution from a competitor or to develop an in-house
solution.
IF FINANCIAL INSTITUTIONS DO NOT CONSIDER THE INTERNET TO BE A VIABLE COMMERCIAL
MEDIUM, OUR CUSTOMER BASE MAY NOT GROW.
Our success depends on financial institutions' acceptance of the Internet as
a viable means to deliver their services. The adoption of the Internet for
commerce and communication, particularly by those financial institutions that
have historically relied upon traditional means, generally requires these
institutions to understand and accept a new way of conducting business and
exchanging information. Financial institutions may be reluctant or slow to adopt
a new, Internet-based strategy because of increased pressure on costs and the
complexity and risk involved in developing a solution based on emerging
technologies. Reluctance by financial institutions to use the Internet to
deliver financial services may prevent us from growing.
8
<PAGE>
OUR PRODUCT HAS ACHIEVED LIMITED MARKET ACCEPTANCE TO DATE, AND IF IT FAILS TO
ACHIEVE MARKET ACCEPTANCE OUR BUSINESS WILL NOT GROW.
Our solution is one of a number of competing solutions that is available in
a new and rapidly evolving market. Financial institutions may not prefer our
solution to competing technologies. If financial institutions do not accept our
product as the preferred solution, we may not attract new customers and our
business will not grow.
OUR FUTURE REVENUE DEPENDS ON CONSUMERS USING THE SERVICES THAT ARE BASED ON OUR
SOLUTION, AND IF OUR CUSTOMERS DO NOT SUCCESSFULLY MARKET THESE SERVICES, OUR
REVENUE WILL NOT GROW.
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, our customers must implement our solution quickly.
However, our customers may delay implementation because of factors that are not
within our control, including budgetary constraints, limited resources committed
to the implementation process and limited internal technical support.
Consumer adoption of these services also requires our customers to market
these services. However, our customers currently have no obligation to launch a
marketing campaign of any kind, may choose not to do so, or may not do so
effectively. To date, these services have only been provided on a test basis to
a limited number of consumers. As a result, we cannot assure you that a large
number of consumers will use these services in the future.
WE CURRENTLY DEPEND ON THE SALE OF A SINGLE PRODUCT TO GENERATE MOST OF OUR
REVENUE AND IF WE ARE UNABLE TO SELL THIS PRODUCT WE MAY NEVER BECOME
PROFITABLE.
We expect sales of our product to constitute most of our revenue for the
foreseeable future. If customers do not purchase this product, we do not
currently offer any other products or services that would enable us to become
profitable.
WE CURRENTLY RELY ON SALES TO A LIMITED NUMBER OF FINANCIAL INSTITUTIONS, AND IF
WE FAIL TO RETAIN THESE CUSTOMERS OR TO ADD NEW CUSTOMERS OUR REVENUE MAY BE
SUBSTANTIALLY REDUCED AND OUR SOLUTION MAY NOT ACHIEVE MARKET ACCEPTANCE.
We derive a significant portion of our revenue from the sale of our solution
to a limited number of financial institutions. Since our inception, sales to one
financial institution have accounted for more than 81% of our total revenue. We
expect that a small number of customers will continue to account for a
significant portion of our revenue for the foreseeable future. If any of our
customers discontinue their relationship with us for any reason, do not renew
their agreements with us, or seek to reduce or renegotiate their purchase and
payment obligations to us, our revenue may be substantially reduced. In
addition, there are a limited number of large financial institutions in our
target market, and we believe this number may decline in the future as a result
of consolidation in the financial services industry worldwide. If our sales
efforts to these potential customers are not successful, our solution may not
achieve market acceptance and our revenue will not grow.
9
<PAGE>
OUR LICENSE AGREEMENTS WITH OUR CURRENT CUSTOMERS DO NOT HAVE LONG TERMS, AND
THE FAILURE OF ANY CUSTOMER TO RENEW ITS AGREEMENT COULD SIGNIFICANTLY DECREASE
OUR REVENUE.
A significant portion of our revenue is derived from the licensing of our
technology to our customers. Unless renewed, the license agreement with each of
our current customers will expire as follows:
<TABLE>
<CAPTION>
CUSTOMER DATE OF EXPIRATION
- -------- ------------------
<S> <C>
Bank of Montreal(1)........................................ February 2000
Bank of America............................................ February 2001
Wells Fargo(2)............................................. September 2003
Citigroup.................................................. December 2004
</TABLE>
- ------------------------
(1) Bank of Montreal has informed us that it intends to extend its agreement for
an additional one year term.
(2) May be terminated earlier by Wells Fargo upon payment of a termination fee.
Each of our customers may, but is not obligated, to renew its license
agreement for additional terms. There is no guarantee that any of our customers
will renew their license agreement. If our customers do not renew these
agreements or otherwise license our technology, our revenue will decrease
substantially. See "Customers" and "Certain Transactions."
IF THE DIGITAL WIRELESS AND OTHER NETWORK SERVICE PROVIDERS THAT ENABLE OUR
CUSTOMERS TO DELIVER SERVICES BASED ON OUR PRODUCT TO CONSUMERS FAIL TO SUPPORT
OUR SERVICE, OUR REVENUE FROM EXISTING CUSTOMERS WILL DECLINE AND WE MAY NOT
ATTRACT NEW CUSTOMERS.
We rely on wireless and other network service providers to introduce and
support services using our product in a timely and effective manner. We have no
control over the pace at which they will do so. If these providers are slow to
support the services that use our solution, our existing customers may not be
able to effectively offer these services, and potential customers may be
reluctant to purchase our platform. In addition, wireless and other network
service providers face implementation and support challenges in introducing
services delivered to Internet-enabled devices, which may slow their rate of
adoption or implementation of our solution. Moreover, the continued expansion of
digital wireless services, especially in North America, is critical to our
success.
IF WE DO NOT RESPOND ADEQUATELY TO EVOLVING TECHNOLOGY STANDARDS, SALES OF OUR
SOLUTION MAY DECLINE.
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
technologies, including technologies related to communications and the Internet
generally and the financial services industry in particular. Wireless Internet
access is a rapidly evolving market and is characterized by an increasing number
of market entrants that have introduced or developed, or are in the process of
introducing or developing, products that facilitate the delivery of
Internet-based services through wireless devices. In addition, our competitors
may develop alternative technologies that gain broader market acceptance than
our solution. As a result, the life cycle of our solution is difficult to
estimate. We may need to develop and introduce new products and enhancements to
our existing solution on a timely basis to keep pace with technological
developments, evolving industry standards, changing customer requirements and
competitive technologies that may render our solution obsolete. These research
and development efforts may require us to expend significant capital and other
resources. In addition, as a result of the complexities inherent in our
solution, major enhancements or improvements will require long development and
testing periods. If we fail to develop products and services in a timely
fashion, or if
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we do not enhance our product to meet evolving customer needs and industry
standards, including security technology, we may not remain competitive or sell
our solution.
ANY DISRUPTION OF THE SERVICES SUPPORTED BY OUR PRODUCT DUE TO ACCIDENTAL OR
INTENTIONAL SECURITY BREACHES MAY DAMAGE OUR REPUTATION, EXPOSE US TO COSTLY
LITIGATION AND REQUIRE CAPITAL INVESTMENTS IN ALTERNATIVE SECURITY TECHNOLOGY.
Despite our efforts to maintain Internet security, we may not be able to
stop unauthorized attempts to gain access to or disrupt transactions between our
customers and the consumers of their services. Specifically, computer viruses,
break-ins and other disruptions could lead to interruptions, delays, loss of
data or the inability to accept and confirm the receipt of information. Any of
these events could substantially damage our reputation. We rely on encryption
and authentication technology licensed from third parties to provide the
security and authentication necessary to achieve secure transmission of
confidential information. We cannot assure you that this technology or future
advances in this technology or other developments will be able to prevent
security breaches. We may need to expend further capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches.
Because our activities involve the storage and transmission of proprietary
information such as credit card numbers and bank account numbers, if a
third-party were able to steal a user's proprietary information, we could be
subject to claims, litigation or other potential liabilities that could cause
our expenses to increase substantially. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or a significant loss of revenue. Although our customer agreements
contain provisions which limit our liability relating to security, our customers
or their consumers may seek to hold us liable for any losses suffered as a
result of unauthorized access to their communications. We may not have adequate
insurance or resources to cover these losses.
WE MAY ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE AND THESE ACQUISITIONS
COULD DISRUPT OUR BUSINESS AND DILUTE YOUR HOLDINGS IN OUR COMPANY.
We may acquire technologies or companies in the future, especially to
establish our application hosting service. Entering into an acquisition entails
many risks, any of which could materially harm our business, including:
- diversion of management's attention from other business concerns;
- failure to effectively assimilate the acquired technology or company into
our business;
- the loss of key employees from either our current business or the acquired
business; and
- assumption of significant liabilities of the acquired company.
To date, we have not completed any acquisitions, and we may not be able to
do so in an effective manner. In addition, your holdings in our company will be
diluted if we issue equity securities in connection with any acquisition.
WE FACE COMPETITION FROM EXISTING AND NEW COMPETITORS AND FROM NEW PRODUCTS
WHICH COULD CAUSE US TO LOSE MARKET SHARE AND CAUSE OUR REVENUE TO DECLINE.
The widespread adoption of open industry standards, such as Wireless
Application Protocol (WAP) specifications, may make it easier for new market
entrants and existing competitors to introduce products that compete with our
product. In addition, our competitors may market their products and services
more effectively than we do, which could decrease demand for our product and
cause our revenue to decline. Currently, our competitors include:
- financial institutions that develop their own in-house solutions;
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- software vendors focused on financial institutions;
- wireless and other network service providers that provide their customers
with wireless financial services; and
- software and services vendors and portals that provide the infrastructure
to link devices to carriers and the Internet and to enable other wireless
applications.
We may also face competition in the future from established companies who
have not previously entered the market for wireless data services and
Internet-related services. Barriers to entry in the software market are
relatively low, and it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. In
addition, many of our competitors have greater resources which may enable them
to penetrate the market more quickly.
ANY FAILURE TO EXPAND AND MANAGE OUR INTERNATIONAL OPERATIONS COULD LIMIT OUR
POTENTIAL REVENUE GROWTH.
We are expanding our activities outside the U.S. and Canada. Our plans to
expand internationally may be adversely affected by a number of risks,
including:
- difficulties in localizing our product and services for foreign markets;
- challenges in staffing and managing foreign operations;
- difficulties in establishing relationships with local partners;
- restrictions on the export of encryption and other technologies;
- recessionary environments in foreign economies, particularly in the
financial services sector; and
- longer payment cycles.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
EXCHANGE LOSSES.
Our expanding operations outside the U.S. and Canada are in some instances
conducted in currencies other than the U.S. dollar and fluctuations in the value
of foreign currencies relative to the U.S. dollar could cause us to incur
currency exchange losses. We cannot predict the effect of exchange rate
fluctuations upon future operating results.
WE WILL NEED TO RECRUIT, TRAIN AND RETAIN KEY MANAGEMENT AND OTHER QUALIFIED
PERSONNEL TO SUCCESSFULLY GROW OUR BUSINESS.
Our future success will depend in large part on our ability to recruit and
retain experienced research and development, sales and marketing, customer
service and management personnel. In particular, our future success depends in
part on the continued services of our current executive officers. If we do not
attract and retain such personnel, we may not be able to grow our business.
Competition for qualified personnel is intense in our industry. In the past we
have experienced difficulty in recruiting qualified personnel, especially
technical and sales personnel. We are in a new market and there are a limited
number of people with the appropriate combination of skills needed to provide
the services that our customers demand. We expect competition for qualified
personnel to remain intense, and we may not succeed in attracting or retaining
sufficient personnel. In addition, new employees generally require substantial
training, which requires significant resources and management attention. Even if
we invest significant resources to recruit, train and retain qualified
personnel, we may not be successful in our efforts.
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OUR SOFTWARE MAY CONTAIN DEFECTS OR ERRORS THAT COULD DAMAGE OUR REPUTATION.
The software we develop is complex and must meet the stringent technical
requirements of our customers. We must develop our product quickly to keep pace
with the rapidly changing industry in which we operate. Software products that
are as complex as ours are likely to contain undetected errors or defects,
especially when first introduced or when new versions are released. In addition,
our software may not properly operate when integrated with the systems of our
customers, or when used to deliver services to a large number of a customer's
subscribers.
While we continually test our product for errors and work with customers
through our customer support services to identify and correct bugs, errors in
our product may be found in the future. Testing for errors is complicated in
part because it is difficult to simulate or anticipate the computing
environments in which our customers use our product. Our software may not be
free from errors or defects even after it has been tested, which could result in
the rejection of our product and damage to our reputation, as well as lost
revenue, diverted development resources, and increased support costs.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS TO US.
We may be subject to claims for damages related to any errors in our
product. A major product liability claim could materially adversely affect our
business because of the costs of defending against these types of lawsuits,
diversion of key employees' time and attention from the business and potential
damage to our reputation. Our license agreements with our customers contain
provisions designed to limit exposure to potential product liability claims.
Limitation of liability provisions contained in our license agreements may not
be effective under the laws of some jurisdictions if local laws treat them as
unenforceable. As a result, we could be required to pay substantial amounts of
damages in settlement or upon the determination of any of these types of claims.
WE HAVE NOT YET INTEGRATED PUBLIC KEY INFRASTRUCTURE INTO OUR SOLUTION, AND IF
WE FAIL TO DO SO, WE MAY BE COMPETITIVELY DISADVANTAGED AND OUR BUSINESS MAY NOT
GROW.
We expect that the use of public key infrastructure (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. If we do not succeed in integrating public key infrastructure into
our solution, our product may not be attractive to potential customers because
of their security concerns. If PKI becomes a widely used standard and our
product does not use that standard, we may be at a competitive disadvantage.
OUR PRODUCT CONTAINS ENCRYPTION TECHNOLOGY WHOSE EXPORT IS RESTRICTED BY LAW,
WHICH MAY SLOW OUR GROWTH OR RESULT IN SIGNIFICANT COSTS.
The U.S. and Canadian governments generally limit the export of encryption
technology, which our product incorporates. A variety of cryptographic products
generally require export approvals from certain U.S. government agencies in the
case of exports from the U.S., and from Canadian government agencies in the case
of exports from Canada, although there are currently no restrictions on exports
of these products from Canada into the U.S. If any export approval that we
receive is revoked or modified, if our software is unlawfully exported or if the
U.S. or the Canadian government adopts new legislation or regulations
restricting export of software and encryption technology, we may not be able to
distribute our solution to potential customers, which will cause a decline in
our sales. We may need to incur significant costs and divert resources to
develop replacement technologies or may need to adopt inferior substitute
technologies to satisfy these export restrictions. These replacement or
substitute technologies may not be the preferred security technologies of our
customers, in which case, our business may not grow. In addition, we may suffer
similar consequences if the laws of any other country limit the ability of third
parties to sell encryption technologies to us.
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WE RELY ON THIRD PARTY SOFTWARE, TECHNOLOGY AND CONTENT, THE LOSS OF WHICH COULD
FORCE US TO USE INFERIOR SUBSTITUTE TECHNOLOGY OR TO CEASE OFFERING OUR PRODUCT.
We must now, and may in the future, license or otherwise obtain access to
the intellectual property of third parties. For example, we have entered into a
license agreement with Certicom and Consensus for use of their encryption
technology. We have also entered into license agreements with third party
content providers. In addition, we use certain third party software that may not
be available to us in the future on commercially reasonable terms or at all. Our
loss of, or inability to maintain or obtain any required intellectual property
could require us to use substitute technology, which could be more expensive or
of lower quality or performance, or force us to cease offering our product.
Moreover, some of our license agreements are non-exclusive and, therefore, our
competitors may have access to the same technology that we license.
IF OUR INTELLECTUAL PROPERTY IS NOT ADEQUATELY PROTECTED, WE MAY LOSE OUR
COMPETITIVE ADVANTAGE.
We depend on our ability to develop and maintain the proprietary aspects of
our technology. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, as well as confidentiality
provisions in our contracts with our customers, all of which afford limited
protection. We also seek to protect our proprietary technology under patent
laws. We have applied for patents, although none have been issued to date. We
have also applied for several trademark registrations for our trademarks,
including "724 Solutions", "724 Solutions & Design" and "E-Anywhere" in Canada
and "724 Solutions" and "724 Solutions & Design" in the U.S., although none of
these trademarks has been registered to date.
Despite the measures we have taken to protect our intellectual property, we
cannot assure you that these steps will be adequate, that we will be able to
secure patent or trademark registrations for all of our patent applications or
trademarks, respectively, in Canada, the U.S. or other countries, or that third
parties will not breach the confidentiality provisions in our contracts or
infringe or misappropriate our copyrights, pending patents, trademarks and other
proprietary rights. In the event that a third party breaches the confidentiality
provisions in our contracts or misappropriates or infringes on our intellectual
property, we may not have adequate remedies. In addition, third parties may
independently discover or invent competing technologies or reverse engineer our
trade secrets, software or other technology. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same extent as do the
laws of the U.S. and Canada. Therefore, the measures we are taking to protect
our proprietary rights may not be adequate.
THIRD PARTIES MAY CLAIM THAT OUR PRODUCT INFRINGES ON THEIR INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSES FOR LITIGATION OR FOR
DEVELOPING OR LICENSING NEW TECHNOLOGY.
Although we are not currently aware of any claims asserted by third parties
that we infringe on their intellectual property, in the future, they may assert
a claim that our current or future products infringe on their intellectual
property. We cannot predict whether third parties will assert these types of
claims against us or against the licensors of technology licensed to us, or
whether those claims will harm our business. If we are forced to defend against
these types of claims, whether they are with or without any merit or whether
they are resolved in favor of or against us or our licensors, we may face costly
litigation and diversion of management's attention and resources. As a result of
these disputes, we may have to develop costly non-infringing technology, or
enter into licensing agreements. These agreements, if necessary, may not be
available on terms acceptable to us, or at all, which could increase our
expenses or make our product less attractive to our customers.
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OUR YEAR 2000 COMPLIANCE EFFORTS MAY INVOLVE SIGNIFICANT TIME AND EXPENSE, AND
UNCORRECTED PROBLEMS COULD DAMAGE OUR REPUTATION AND FORCE US TO DIVERT
RESOURCES FROM SELLING AND DEVELOPING OUR PRODUCT.
The risks posed by year 2000 issues, which arise because computer systems
and software products may be unable to distinguish between twentieth century
dates and twenty-first century dates, could harm our business in a number of
significant ways. Both before and after January 1, 2000, computer systems and
software used by many companies in a wide variety of industries, including
technology, finance and communications will produce erroneous results or fail
unless they have been modified or upgraded to process date information
correctly. If we experience disruptions as a result of the year 2000 problem,
our revenue could decline and we may incur significant costs to correct any
problems. Although we believe that our software product, internally developed
systems and technology are year 2000 compliant, our systems and technology
nevertheless could be substantially impaired or cease to operate due to year
2000 problems. We may face claims based on year 2000 issues arising from the
integration of multiple products, including ours, within an overall system. Our
customers may also cease or delay the purchase and installation of new complex
systems, such as our software product, as a result of, and during, their own
internal year 2000 testing.
Our solution is integrated with the systems of financial institutions, which
use our software to deliver information and services over the networks of
wireless and other network service providers to Internet-enabled devices. If
their software processes information erroneously, or fails to deliver
information or to otherwise operate, as a result of their failure to process
information relating to year 2000 issues, the services enabled by our solution
will not be properly delivered. If this occurs, our solution may become less
attractive to financial institutions as consumer demand for the services enabled
by our solution decreases. In addition, because we expect to receive revenue
under some of our contracts based on per user fees, our revenue will be reduced
if additional users are discouraged from purchasing the services supported by
our solution as a result of perceived or actual difficulties in delivering these
services in light of year 2000 issues.
IF WE DO NOT HAVE SUFFICIENT CAPITAL TO FUND OUR OPERATIONS, WE MAY BE FORCED TO
DISCONTINUE PRODUCT DEVELOPMENT, REDUCE OUR SALES AND MARKETING EFFORTS OR
FOREGO ATTRACTIVE BUSINESS OPPORTUNITIES.
We may not have sufficient capital to fund our operations and additional
capital may not be available on acceptable terms if at all. Any of these
outcomes could adversely impact our ability to respond to competitive pressures
or prevent us from conducting all or a portion of our planned operations. We
expect that the net proceeds from this offering and cash on hand will be
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. After that, we may need to raise additional funds, and
additional financing which may not be available on acceptable terms, if at all.
We may also require additional capital to acquire or invest in complementary
businesses or products or obtain the right to use complementary technologies. If
we issue additional equity securities to raise funds, your ownership percentage
of our company will be reduced.
YOUR TAX LIABILITY MAY INCREASE IF WE ARE TREATED AS A PASSIVE FOREIGN
INVESTMENT COMPANY.
Based on the nature of our revenue and our anticipated corporate structure,
we may be treated as a passive foreign investment company (a "PFIC") for U.S.
federal income tax purposes. If at any time we qualify as a PFIC, U.S. persons
holding our common shares may be subject to adverse tax consequences, including
an increased tax liability upon the sale of those common shares or upon the
receipt of specified types of distributions from us. Application of the PFIC
rules to our business is uncertain, and we have not determined whether we are a
PFIC. Moreover, our PFIC status must be determined annually based on tests which
are factual in nature, and we have not determined whether we will become, or are
likely to become, a PFIC in the future. You are urged to consult your own tax
advisor with respect to the potential consequences to you if at any time we
qualify as a PFIC. See
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"Income Tax Consequences--U.S. Federal Income Tax Considerations--Passive
Foreign Investment Companies".
OUR ABILITY TO ISSUE PREFERRED SHARES COULD MAKE IT MORE DIFFICULT FOR A THIRD
PARTY TO ACQUIRE US TO THE DETRIMENT OF HOLDERS OF COMMON SHARES.
Provisions in our articles of incorporation may make it difficult for a
third party to acquire control of us, even if a change in control would be
beneficial to our shareholders. Our articles authorize our board to issue, at
its discretion, an unlimited number of preferred shares. Without shareholder
approval, our board has the authority to attach special rights, including voting
or dividend rights, to the preferred shares. Preferred shareholders who possess
these rights could make it more difficult for a third party to acquire our
company.
RISK FACTORS RELATED TO OUR INDUSTRY
OUR BUSINESS WILL NOT GROW IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW.
Our future success is substantially dependent on continued growth in the use
of the Internet. Our business may be adversely impacted if the number of users
on the Internet does not increase or if commerce over the Internet does not
become more accepted and widespread. The use and acceptance of the Internet may
not increase for a number of reasons, including the cost and availability of
Internet access.
Published reports have also indicated that capacity constraints caused by
growth in the use of the Internet may impede further development of the Internet
to the extent that users experience delays, transmission errors and other
difficulties. If the necessary infrastructure, products, services or facilities
are not developed, or if the Internet does not become a viable and widespread
commercial medium, we will not be able to grow our business.
OUR BUSINESS WILL NOT GROW IF THE USE OF WIRELESS DATA SERVICES DOES NOT
CONTINUE TO GROW.
The markets for wireless data services and related products are still
emerging, and continued growth in demand for and acceptance of these services
remains uncertain. Our solution depends on the acceptance of wireless data
services and Internet-enabled devices in the commercial and financial markets.
Current barriers to market acceptance of these services include cost,
reliability, platform and distribution channel constraints, safety,
functionality and ease of use. We cannot be certain that these barriers will be
overcome. Since the market for our solution is new and evolving, it is difficult
to predict the size of this market or its future growth rate, if any. Our future
financial performance will depend in large part upon the continued demand for
on-line financial services through wireless application devices. We cannot
assure you that a sufficient volume of subscribers will demand financial
services or will seek financial services provided through the Internet on
wireless application devices. If the market for wireless on-line financial
services grows more slowly than we currently anticipate, our revenue may not
grow.
LACK OF CONSUMER CONFIDENCE IN THE SECURITY OF ON-LINE FINANCIAL TRANSACTIONS
COULD LIMIT ADOPTION OF OUR SOLUTION, WHICH COULD PREVENT US FROM BECOMING
PROFITABLE.
Consumers will not adopt on-line 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 on-line transactions, many Internet users do not use the Internet
for commercial transactions because of continued security concerns. These
concerns may be heightened by well-publicized security breaches of any
Internet-related service, which could deter consumers from adopting the services
provided by our solution. If consumers do not gain confidence in the security
for on-line financial transactions that the current technologies provide, our
revenue will not increase.
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CHANGES IN GOVERNMENT REGULATIONS MAY RESULT IN INCREASED EXPENSES, TAXES OR
LICENSING FEES WHICH COULD DECREASE THE DEMAND FOR OUR PRODUCT AND NEGATIVELY
IMPACT OUR RESULTS.
We are not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally and laws and
regulations directly applicable to access to, or commerce on, the Internet.
However, a number of legislative and regulatory proposals under consideration by
federal, state, provincial, local and foreign governmental organizations may
lead to laws or regulations concerning various aspects of the Internet,
including but not limited to, on-line content, user privacy, taxation, access
charges and liability for third-party activities. Additionally, it is uncertain
how existing laws governing issues such as property ownership, copyright, trade
secrets, libel and personal privacy will be applied to the Internet. The
adoption of new laws or the broader application of existing laws may expose us
to significant liabilities and additional operational requirements and may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our product and increase our cost of doing business.
RISK FACTORS RELATED TO THIS OFFERING
A LIMITED NUMBER OF SHAREHOLDERS WILL COLLECTIVELY CONTINUE TO OWN A MAJORITY OF
OUR COMMON SHARES AFTER THIS OFFERING AND MAY ACT, OR PREVENT CERTAIN TYPES OF
CORPORATE ACTIONS, TO THE DETRIMENT OF OTHER SHAREHOLDERS.
Immediately after this offering, our five principal shareholders, including
entities affiliated with members of our management team, will own approximately
77.5% of our outstanding common shares. Accordingly, these shareholders may, if
they act together, exercise significant influence over all matters requiring
shareholder approval, including the election of a majority of the directors and
the determination of significant corporate actions after this offering. This
concentration could also have the effect of delaying or preventing a change in
control that could be otherwise beneficial to our shareholders.
THE MARKET PRICE OF OUR COMMON SHARES IS LIKELY TO BE VOLATILE, WHICH MAY RESULT
IN LITIGATION THAT COULD BE COSTLY AND DIVERT OUR RESOURCES.
Stock markets have recently experienced extreme price and volume
fluctuations, particularly for the shares of technology companies. These
fluctuations are often unrelated to the operating performance of particular
companies. The broad market fluctuations may adversely affect the market price
of our common shares. When the market price of a company's stock drops
significantly, shareholders often institute securities class action lawsuits
against that company. A lawsuit against us could cause us to incur substantial
costs and could divert the time and attention of our management and other
resources.
FUTURE SALES OF COMMON SHARES BY OUR EXISTING SHAREHOLDERS COULD CAUSE OUR SHARE
PRICE TO FALL.
If our shareholders sell substantial amounts of our common shares in the
public market, the market price of our common shares could fall. The perception
among investors that these sales will occur could also produce this effect.
After this offering, we will have 35,402,426 common shares outstanding. All of
the 6,000,000 common shares we will issue in this offering will generally be
immediately available for resale in the public markets, other than shares
purchased by our affiliates. In accordance with applicable securities laws and
after giving effect to lock-up agreements executed by our directors, executive
officers and existing shareholders, and assuming that the relief being sought
which is described under the caption "Shares Eligible for Future Sale--Canadian
Resale Restrictions" is obtained, all common shares outstanding after this
offering will be available for sale in the public market beginning 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale".
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OUR SECURITIES HAVE NO PRIOR PUBLIC MARKET AND OUR SHARE PRICE MAY DECLINE AFTER
THE OFFERING.
Before this offering, there has been no public market for our common shares,
and an active public market for our common shares may not develop or be
sustained after this offering. If an active public market for our common shares
does not develop, the liquidity of your investment may be limited, and our share
price may decline below its initial public offering price. The initial public
offering price will be determined by negotiations between us and the
representative of the underwriters and may bear no relationship to the price
that will prevail in the public market.
WE WILL HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS OF THIS OFFERING, AND
OUR USE OF THOSE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We intend to use the proceeds from this offering for general corporate
purposes, including the development of our application hosting service, and
potential acquisitions. Accordingly, we will have broad discretion in using
these proceeds. You will not have the opportunity to evaluate the economic,
financial or other information that we may use to determine how we use these
proceeds.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common shares will significantly
exceed the net tangible book value per share of our common shares. Accordingly,
if you purchase common shares in this offering, you will incur immediate and
substantial dilution of your investment. If the outstanding options to purchase
our common shares are exercised, you will incur additional dilution.
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FORWARD-LOOKING STATEMENTS
Statements under "Prospectus Summary", "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Business" and elsewhere in this prospectus about our future results, levels of
activity, performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those listed under "Risk Factors" or
described elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by our use of
words such as "may", "will", "should", "could", "expects", "plans", "intends",
"anticipates", "believes", "estimates", "predicts", "potential" or "continue" or
the negative or other variations of these words, or other comparable words or
phrases.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover, neither
we nor anyone else assumes responsibility for the accuracy and completeness of
forward-looking statements. We are under no duty to update any of our forward-
looking statements after the date of this prospectus, other than as required by
law. You should not place undue reliance on forward-looking statements.
GENERAL INFORMATION IN PROSPECTUS
Unless we state otherwise, the information in this prospectus assumes no
exercise of the underwriters' over-allotment option and gives effect to the
two-for-one split of our common shares that occurred on December 30, 1999.
We have applied for registration of the trademarks "724 Solutions", "724
Solutions & Design" and "E-Anywhere" in Canada and "724 Solutions" and "724
Solutions & Design" in the U.S. All other trademarks or service marks appearing
in this prospectus are the trademarks or service marks of the companies that use
them.
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USE OF PROCEEDS
We expect to receive about $65.3 million in net proceeds from the sale of
6,000,000 common shares in this offering, based on the estimated initial public
offering price of $12.00 per common share. We estimate that the net proceeds
will be about $75.3 million if the underwriters' over-allotment option is
exercised in full. The principal purposes of this offering are to obtain
additional capital, to create a public market for our common shares and to
facilitate our future access to the public capital markets.
We currently expect to use approximately $20 million to $40 million from the
net proceeds of this offering towards the development of our application hosting
service, and $20 million to $30 million for research and development expenses.
We currently do not have specific plans with respect to the remaining net
proceeds from this offering. We expect to use these remaining net proceeds for
general corporate purposes. In particular, we may use a portion of the net
proceeds to fund acquisitions of, or investments in, businesses, products or
technologies that expand, complement or are otherwise related to our current
business. However, we have no present agreements or commitments with respect to
any acquisition or investment. Our plans with respect to the allocation of these
proceeds among the uses described above may change after the date of this
prospectus. Pending these uses, we expect to invest the net proceeds in
short-term, interest-bearing investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common shares. We
currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.
EXCHANGE RATES
As of December 31, 1999, the noon buying rate in New York City for cable
transfers in Canadian dollars was Cdn.$1.00 equals $0.6925. The following table
sets forth, for each period presented, the high and low exchange rates, the
average of the exchange rates on the last day of each month during the period
indicated, and the exchange rates at the end of the period indicated for one
Canadian dollar expressed in U.S. dollars, based on the noon buying rate for
cable transfers payable in Canadian dollars as certified for customs purposes by
the Federal Reserve Bank of New York.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
End of period...................... $0.7143 $0.7323 $0.7301 $0.6999 $0.6504 $0.6805
Average for period................. $0.7194 $0.7299 $0.7353 $0.7246 $0.6757 $0.6711
High for period.................... $0.7634 $0.7519 $0.7519 $0.7463 $0.7092 $0.6897
Low for period..................... $0.7092 $0.7042 $0.7246 $0.6944 $0.6329 $0.6536
</TABLE>
20
<PAGE>
CAPITALIZATION
The table below describes our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of 10,082,066 common
shares for aggregate proceeds of $41.1 million in October 1999; and
- on a pro forma basis as adjusted to give effect to the issuance of
10,082,066 common shares in October 1999 and to reflect the estimated net
proceeds from the sale of 6,000,000 common shares to be sold in this
offering based on the estimated initial public offering price of $12.00
per share.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $28,044 $69,134 $134,430
======= ======= ========
Shareholders' equity:
Unlimited number of common shares authorized;
19,320,360 shares issued and outstanding (actual),
29,402,426 common shares issued and outstanding (pro
forma) and 35,402,426 common shares issued and
outstanding (pro forma as adjusted)(1).................. 37,907 78,997 144,293
Deferred stock-based compensation........................... (150) (150) (150)
Accumulated deficit......................................... (11,023) (11,023) (11,023)
------- ------- --------
Total capitalization........................................ $26,734 $67,824 $133,120
======= ======= ========
</TABLE>
- ------------------------
(1) The number of shares outstanding as of September 30, 1999, after giving
effect to the issuance of 10,082,066 common shares in October 1999, in the
table above excludes the following:
- outstanding options as of September 30, 1999 to purchase 2,211,594 common
shares under our stock option plans at a weighted average exercise price
of $0.88 per share;
- common shares issued upon the exercise of stock options after
September 30, 1999;
- 666,668 common shares issuable upon the exercise of a warrant having an
exercise price of $7.50 per share; and
- approximately 67,200 common shares issuable to one of our shareholders at
a purchase price of $7.50 per share upon exercise of a preemptive right if
the warrant described above is exercised.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999, was $67.8
million or $2.31 per share. Pro forma net tangible book value per share
represents the amount of our total assets less total liabilities as of
September 30, 1999, divided by the number of common shares outstanding and
adjusted to give effect to the issuance of 10,082,066 common shares for net
proceeds of $41.1 million in October 1999. After giving effect to the sale of
the 6,000,000 common shares offered at the estimated initial public offering
price of $12.00 per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of September 30, 1999, would have been
$133.1 million, or $3.76 per share. This represents an immediate increase in pro
forma net tangible book value of $1.45 per share to existing shareholders and an
immediate dilution in net tangible book value of $8.24 per share to new
investors of common shares in this offering. The following table illustrates
this dilution on a per share basis:
<TABLE>
<CAPTION>
<S> <C>
Estimated initial public offering price per share........... $12.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... 2.31
Increase attributable to new investors.................. 1.45
------
Pro forma net tangible book value per share after this
offering.................................................. 3.76
------
Dilution per share to new investors......................... $ 8.24
======
</TABLE>
The following table sets forth, as of December 15, 1999, the difference
between the number of common shares purchased, the total consideration paid and
the average price per share paid by the existing holders of our common shares
and by the new investors, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us at the assumed initial
public offering price of $12.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- --------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
---------- ---------- -------- ---------- ---------
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 29,402,426 83.1% $ 75,255 51.1% $2.56
New investors............................. 6,000,000 16.9 72,000 48.9% 12.00
---------- ------ -------- ------
Total..................................... 35,402,426 100.0% $147,255 100.0%
========== ====== ======== ======
</TABLE>
To the extent that any shares are issued upon the exercise of options or
warrants that were outstanding as of September 30, 1999 or granted after that
date, or reserved for future issuance under our stock option plans, there will
be further dilution to new investors. For a more detailed discussion of our
stock option plans and outstanding options to purchase common shares see
"Management--Stock Option Plans", "Description of Share Capital" and notes 4
and 12 to our consolidated financial statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
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. You should
read the following selected consolidated financial data with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and notes appearing elsewhere in this
prospectus. The consolidated statements of operations data for the period from
July 28, 1997 (inception) to December 31, 1997, for the year ended December 31,
1998 and the nine months ended September 30, 1998 and 1999, and the consolidated
balance sheets data as of December 31, 1997 and 1998 and as of September 30,
1999, are derived from our consolidated financial statements that have been
audited by KPMG LLP, Independent Auditors, which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM ENDED
JULY 28, 1997 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED -------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
------------------ ------------------ -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Product................................... $ -- $ 1,678 $1,049 $ 1,314
Services.................................. -- 208 208 788
------ ------- ------ -------
Total revenue........................... -- 1,886 1,257 2,102
Cost of revenue............................. -- 61 61 819
------ ------- ------ -------
Gross profit................................ -- 1,825 1,196 1,283
Operating expenses:
Research and development.................. 44 2,096 980 4,468
Sales and marketing....................... 39 412 209 1,134
General and administrative................ 82 547 255 2,175
Stock-based compensation.................. -- 3,468 154 124
------ ------- ------ -------
Total operating expenses................ 165 6,523 1,598 7,901
------ ------- ------ -------
Income (loss) from operations........... (165) (4,698) (402) (6,618)
Interest income............................. 10 107 69 341
------ ------- ------ -------
Income (loss) before income taxes....... (155) (4,591) (333) (6,277)
Income taxes................................ -- -- -- --
------ ------- ------ -------
Net income (loss)....................... $ (155) $(4,591) $ (333) $(6,277)
====== ======= ====== =======
Basic and diluted net income (loss) per
share..................................... $(0.06) $ (0.79) $(0.07) $ (0.47)
====== ======= ====== =======
Shares used in computing basic and diluted
net income (loss) per share (in
thousands)................................ 2,752 5,784 4,564 13,301
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents................................... $1,299 $2,976 $28,044
Working capital............................................. 1,267 1,913 25,097
Total assets................................................ 1,321 3,892 32,444
Total shareholders' equity.................................. 1,288 2,773 26,734
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.
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 on-line
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. During this trial, a limited number of Bank of
Montreal's 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 PalmPilot connected
organizers and mobile phones. This trial was completed in September 1999. During
the period May through September 1999, we filled key management positions in our
sales and marketing departments, attracted Bank of America, Citigroup and Sonera
Corporation as additional investors and continued to develop our product.
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 product revenue consists of license fees. Historically, our services
revenue has consisted primarily of implementation and customer service fees. In
the future, we believe that our services revenue will also include amounts
derived from maintenance fees, the operation of our application hosting service,
revenue sharing arrangements and commissions on e-commerce transactions.
CURRENT SOURCES OF REVENUE
LICENSE FEES
Through September 30, 1999, our product revenue consisted of the licensing
of our software. Until June 1999, substantially all of our revenue was derived
from our contract with Bank of Montreal.
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 upon execution of the license agreement and on
each anniversary date 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 Wells Fargo
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 second, we expect our revenue stream
to vary with the number of our customers' 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 users.
24
<PAGE>
Under the fixed fee license model, we recognize revenue when we have
executed an agreement with a customer, delivery and acceptance have occurred,
and 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.
IMPLEMENTATION AND CUSTOMER SERVICE FEES
Revenue from implementation and customer services includes fees for
implementation, 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.
FUTURE SOURCES OF REVENUE
MAINTENANCE FEES
We expect to receive revenue from maintaining and servicing our product for
our customers. The maintenance fee will typically be equal to a percentage of
the customer's license fee. If associated with the fixed fee license model, the
maintenance amounts 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.
APPLICATION HOSTING SERVICE FEES
Some of our existing customers require us, and some of our potential
customers may require us, to host and manage the server infrastructure and
software platform as part of the implementation of our solution. We are
currently building the capacity to provide this service. Once implemented, we
plan to provide this service for a monthly fee based upon the number of our
customers' users.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUE
Our revenue increased from $1.3 million for the nine months ended
September 30, 1998 to $2.1 million for the nine months ended September 30, 1999.
Our product revenue increased from $1.0 million for the nine months ended
September 30, 1998 to $1.3 million for the nine months ended September 30, 1999,
due primarily to four additional months of revenue realized in 1999 from our
contract with Bank of Montreal. Our service revenue increased from $208,000 for
the nine months ended September 30, 1998 to $788,000 for the nine months ended
September 30, 1999 due to additional contracts for consulting and software
design services.
COST OF REVENUE
Our cost of revenue consists of salaries and related expenses for our
consulting services, customer support, implementation and training services,
costs of third parties contracted to provide consulting services to customers
and an allocation of our facilities, administration and depreciation expenses.
In the future, our cost of revenue will also include software licensing expenses
and royalties paid to third parties for integration of their software into our
platform.
25
<PAGE>
Our cost of revenue increased from $61,000 for the nine months ended
September 30, 1998 to $819,000 for the nine months ended September 30, 1999 due
to payments to third party consultants and the addition of implementation and
customer service personnel.
OPERATING EXPENSES
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 from $980,000 for the nine
months ended September 30, 1998 to $4.5 million for the nine months ended
September 30, 1999. This increase largely reflects the addition of personnel to
our research and development department which grew from 23 employees as of
September 30, 1998 to 69 employees as of September 30, 1999, primarily to
support the second release of our software.
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 from $209,000 for the nine months
ended September 30, 1998 to $1.1 million for the nine months ended
September 30, 1999. This increase is primarily attributable to the hiring of
additional sales and marketing personnel, together with increased travel and
related expenses. Our sales and marketing department grew from one employee as
of September 30, 1998 to 14 employees as of September 30, 1999, including one
employee based in Europe. We expect that our sales and marketing expenses will
continue to increase as we expand internationally. This increase reflects the
opening of a sales office in San Francisco in 1999 and an increase in our
representation in Europe and Asia.
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 from $255,000 for the nine
months ended September 30, 1998 to $2.2 million for the nine months ended
September 30, 1999. The corporate staff increased from five employees as of
September 30, 1998 to 23 employees as of September 30, 1999.
STOCK-BASED COMPENSATION. Stock-based compensation is recorded if on the
date of an option grant, the current fair value of each underlying common share
exceeds the exercise price of the option. Stock-based compensation expense is
recognized over the vesting period of the option. Stock-based compensation
decreased from $154,000 for the nine months ended September 30, 1998 to $124,000
for the nine months ended September 30, 1999. This decrease is primarily
attributable to a higher level of amortization in the nine months ended
September 30, 1998 due to the grant of immediately vested options in this
period.
INTEREST INCOME
Interest income, which increased from $69,000 for the nine months ended
September 30, 1998 to $341,000 for the nine months ended September 30, 1999, was
derived from cash and cash equivalent balances, representing primarily the
unused portion of the proceeds from our issuances of common shares.
26
<PAGE>
PERIOD FROM JULY 28, 1997 (INCEPTION) TO DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998
We were established in July 1997 and therefore have a limited operating
history for the period ended December 31, 1997. During this period, we commenced
a market research study to develop strategies for financial institutions with
respect to the use of the Internet and wireless services.
REVENUE
We did not have any revenue for the period ended December 31, 1997. We
recognized $1.9 million of revenue for the year ended December 31, 1998, which
included $1.7 million of product revenue and $208,000 of services revenue. Our
product revenue consisted of license fees under our agreement with Bank of
Montreal, while our services revenue consisted of payments from Bank of Montreal
for our consulting work.
COST OF REVENUE
Cost of revenue was $61,000 for the year ended December 31, 1998 and
consisted of salaries and related expenses for our consulting work.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$44,000 for the period ended December 31, 1997 to $2.1 million for the year
ended December 31, 1998, as we hired 33 employees in connection with the initial
release of our software.
SALES AND MARKETING. Sales and marketing expenses increased from $39,000
for the period ended December 31, 1997 to $412,000 for the year ended
December 31, 1998, reflecting the establishment of our sales and marketing
department.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $82,000 for the period ended December 31, 1997 to $547,000 for the year
ended December 31, 1998, primarily as a result of the increase in the size of
our corporate infrastructure.
INTEREST INCOME
Interest income, which increased from $10,000 for the period ended
December 31, 1997 to $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.
STOCK-BASED COMPENSATION. Stock-based compensation in the amount of
$3.5 million for the year ended December 31, 1998 consisted of $181,000 of
amortized deferred stock-based compensation related to employee stock options
and $3.3 million related to an option issued to Bank of Montreal. Under our
April 30, 1998 subscription agreement with Bank of Montreal, we granted an
option to Bank of Montreal to subscribe for 2,428,570 common shares for
Cdn.$1 million. This option was only exercisable if specified future conditions
were met. These conditions were satisfied in October 1998. On the date the
option was granted 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.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
operations data for each of the seven most recent quarters ended September 30,
1999. The information has been derived from our unaudited consolidated financial
statements that, in management's opinion, have been prepared on a basis
consistent with the audited consolidated financial statements contained
elsewhere in this prospectus and includes all adjustments consisting of only
normal recurring adjustments necessary for fair presentation of information when
read in conjunction with our audited consolidated financial statements and
related notes. These operating results are not necessarily indicative of results
for any future period. You should not rely on them to predict our future
performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- ---------- --------- --------- --------- ----------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Product............................. $ -- $ 419 $ 630 $ 629 $ 548 $ 383 $ 383
Services............................ 208 -- -- -- 34 -- 754
------ ------ ------ ------- ------- ------- -------
Total revenue..................... 208 419 630 629 582 383 1,137
Cost of revenue....................... 61 -- -- -- -- 20 799
------ ------ ------ ------- ------- ------- -------
Gross profit...................... 147 419 630 629 582 363 338
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Research and development............ 52 357 571 1,116 1,144 1,375 1,949
Sales and marketing................. 27 81 101 203 207 303 624
General and administrative.......... 41 104 110 292 332 629 1,214
Stock-based compensation............ 72 15 67 3,314 27 27 70
------ ------ ------ ------- ------- ------- -------
Total operating expenses.......... 192 557 849 4,925 1,710 2,334 3,857
------ ------ ------ ------- ------- ------- -------
Income (loss) from operations......... (45) (138) (219) (4,296) (1,128) (1,971) (3,519)
Interest income....................... 18 20 31 38 61 28 252
------ ------ ------ ------- ------- ------- -------
Net income (loss)................. $ (27) $ (118) $ (188) $(4,258) $(1,067) $(1,943) $(3,267)
====== ====== ====== ======= ======= ======= =======
Basic and diluted net income (loss)
per share........................... $ 0.01 $(0.03) $(0.04) $ (0.46) $ (0.09) $ (0.17) $ (0.19)
====== ====== ====== ======= ======= ======= =======
Shares used in computing basic and
diluted net income (loss) per share
(in thousands)...................... 4,000 4,667 5,000 9,286 11,429 11,609 16,870
====== ====== ====== ======= ======= ======= =======
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Product............................. 0.0% 100.0% 100.0% 100.0% 94.2% 100.0% 33.7%
Services............................ 100.0 0.0 0.0 0.0 5.8 0.0 66.3
------ ------ ------ ------- ------- ------- -------
Total revenue..................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue....................... 29.3 0.0 0.0 0.0 0.0 5.2 70.3
------ ------ ------ ------- ------- ------- -------
Gross profit...................... 70.7 100.0 100.0 100.0 100.0 94.8 29.7
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Research and development............ 25.0 85.2 90.6 177.4 196.6 359.0 171.4
Sales and marketing................. 13.0 19.3 16.0 32.3 35.6 79.1 54.9
General and administrative.......... 19.7 24.8 17.5 46.4 57.0 164.2 106.8
Stock-based compensation............ 34.6 3.5 10.6 526.9 4.6 7.4 6.2
------ ------ ------ ------- ------- ------- -------
Total operating expenses.......... 92.3 132.9 134.8 783.0 293.8 609.4 339.2
------ ------ ------ ------- ------- ------- -------
Income (loss) from operations......... (21.6) (32.9) (34.8) (683.0) (193.8) (514.6) (309.5)
Interest income....................... 8.7 4.8 4.9 6.0 10.5 7.3 22.2
------ ------ ------ ------- ------- ------- -------
Net income (loss)................. (13.0) (28.2) (29.8) (676.9) (183.3) (507.3) (287.3)
====== ====== ====== ======= ======= ======= =======
</TABLE>
REVENUE
Our quarterly product revenue for the seven quarters ended September 30,
1999 is derived from our license agreement with Bank of Montreal. We recognized
revenue of approximately $210,000 per month over the ten month period from
April 30, 1998 to February 28, 1999. Beginning April 1, 1999 we deferred a
portion of the revenue received under this agreement in connection with Bank of
Montreal's waiver of its exclusive rights to our technology in Canada. We expect
to recognize these amounts in 2000 upon the expiration of these rights. See
"Certain Transactions".
Our services revenue for the quarter ended March 31, 1998 relates to a
market research study that we conducted to develop strategies for financial
institutions with respect to the use of the Internet and wireless services. Our
services revenue in the quarter ended September 30, 1999 related to a customer
contract for consulting and software design services.
COST OF REVENUE
The cost of revenue for the seven quarters ended September 30, 1999 relates
to costs associated with delivering our services. The significant increase in
the cost of revenue for the quarter ended September 30, 1999 is due to a new
customer contract. To date, all of our costs related to our product revenue have
been research and development expenses.
OPERATING EXPENSES
Our quarterly operating expenses have increased primarily due to the growth
of our operations, in particular the increase in our staff and management.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through issuances of common
shares together with revenue from operations. Through September 30, 1999, we
received aggregate proceeds of $34.2 million from the issuance of our common
shares. As of September 30, 1999, we had working capital of $25.1 million, which
included $28.0 million in cash and cash equivalents. In October 1999, we
received aggregate proceeds of $41.1 million from additional issuances of our
common shares.
Net cash used in operating activities was $123,000 for the period from
July 28, 1997 to December 31, 1997, $4,000 for the year ended December 31, 1998,
and $3.8 million for the nine
29
<PAGE>
months ended September 30, 1999. Net cash used in operating activities for the
nine months ended September 30, 1999 reflects the operating loss of
$6.2 million offset by depreciation of $445,000 and net changes in working
capital of $1.9 million, primarily related to the deferred revenue from fixed
fee licenses.
Cash provided from financing activities was $1.4 million for the period from
July 28, 1997 to December 31, 1997, $2.6 million for the year ended
December 31, 1998 and $30.1 million for the nine months ended September 30,
1999. These cash flows reflect the proceeds received from issuances of our
common shares.
Cash used in investing activities was $21,000 for the period from July 28,
1997 to December 31, 1997, $927,000 for the year ended December 31, 1998 and
$1.2 million for the nine months ended September 30, 1999. Cash used in
investing activities reflects purchases of property and equipment in each
period. These expenditures consisted of purchases of computer hardware and
software, office furniture and equipment and leasehold improvements. We expect
that our capital expenditures will continue to increase in the future.
We expect our operating expenses to grow significantly, particularly
research and development expenses and sales and marketing expenses. In addition,
we expect to incur substantial operating expenses of $60 million to $80 million
in 2000 as we open our planned application hosting facilities and additional
sales offices. These expenses may vary depending upon the pace at which we open
these facilities and sales offices.
Our future liquidity and capital requirements will principally depend on our
rate of growth and the means by which we achieve our growth. For example, we may
utilize cash resources to fund acquisitions or investments in complementary
businesses or technologies. We believe that the net proceeds from the sale of
the common shares in this offering, together with cash on hand and revenue from
our operations, will be sufficient to meet our cash requirements for at least
the next 12 months.
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 foreign
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
twenty-first century dates from twentieth 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.
OUR GENERAL READINESS
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
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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 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 also taken steps to ensure that our non-information technology
systems are year 2000 compliant. In particular, we have established plans to
ensure that our critical systems, including our electrical power, communications
and payroll systems, will not be impaired as a result of issues relating to the
year 2000. We have also devised an internal communications plan and a
contingency plan which designates certain individuals to respond to particular
year 2000 related problems if one occurs.
INDEPENDENT VERIFICATION AND VALIDATION
We engaged an independent consulting firm to conduct a verification of all
of our computer software source code. The review assessed our computer software
code, and a preliminary report has been issued. This report identified one
problem in the source code that related to year 2000 problems. We have made the
appropriate change to our source code and are awaiting final approval of this
change.
THIRD PARTY TECHNOLOGY SYSTEMS
If the software used by other entities with which our software interacts,
particularly the software used by the financial institutions with which our
software is integrated, fails to properly distinguish the year 2000 from the
year 1900, the services provided by these financial institutions to their
customers using our software will be substantially disrupted, will provide
erroneous information or will fail to properly process transactions. In addition
to computers and related systems, the operation of our office and facilities
equipment, such as fax machines, telephone switches, security systems and other
common devices, may be affected by the year 2000 problem.
COST OF OUR YEAR 2000 EFFORTS
We have incurred aggregate expenses of approximately $85,000 since our
inception in connection with this process, and do not expect to incur any
significant additional expenditures in this regard.
MOST LIKELY CONSEQUENCES OF YEAR 2000 PROBLEMS
We believe that it is not possible to determine with complete certainty that
all year 2000 related problems affecting us have been identified or corrected.
The number of devices and systems that could be affected and the interactions
among these devices and systems are numerous. We believe that there exists the
potential for a significant number of operational inconveniences and
inefficiencies, and possible disputes and claims related to products or services
used or provided by us.
CONTINGENCY PLANS
We have taken measures to ensure that our internal systems and equipment are
year 2000 compliant for both hardware and software. All of our operating systems
on all critical servers have been upgraded, and all individual computers and
tools have been verified as year 2000 compliant. We perform a daily back-up of
all critical information. In the event of a failure we estimate that the
information technology infrastructure necessary to run our internal business
operations could be restored.
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BUSINESS
OVERVIEW
We provide an Internet infrastructure solution to financial institutions
that enables them to offer personalized and secure on-line banking, brokerage
and e-commerce services across a wide range of Internet-enabled wireless and
consumer electronic devices. Our solution currently enables consumers to access
on-line banking and brokerage services through network service providers using
digital mobile phones, personal digital assistants, two-way pagers and personal
computers. Our customers do not currently offer e-commerce services based upon
our solution, but have advised us that they expect to begin to do so in the year
2000. With critical security features built in, our solution can be quickly
implemented and integrated with existing systems, and scaled or expanded to
accommodate future growth. Using our platform, financial institutions may build
on their consumers' trust and provide new levels of service in an easy to use,
personalized way.
The emergence of the Internet is having a significant effect on the delivery
of financial services to consumers. As a group, on-line consumers represent an
affluent and important market segment. These consumers are increasingly using
new methods, including wireless technologies, to access the Internet. The
convergence of the Internet and digital wireless technologies presents new
opportunities for financial institutions. Using our platform, financial
institutions can differentiate their services to retain and strengthen their
existing customer relationships and attract new customers.
Our objective is to become the leading provider of Internet infrastructure
solutions for the secure delivery of transaction and information services to
consumers. Our target market includes the largest financial institutions
worldwide. Bank of America, Citigroup, Bank of Montreal and Wells Fargo are in
various stages of implementing our solution. These institutions have a worldwide
customer base with approximately 152 million customer relationships.
INDUSTRY OVERVIEW
GROWTH OF THE INTERNET
The Internet has emerged as a global communications medium to deliver and
share information and conduct business electronically. International Data
Corporation (IDC) estimates that the number of worldwide Internet users will
grow from approximately 142 million users in 1998 to 502 million users by the
end of 2003. The dramatic growth in the number of Internet users has led to a
proliferation of information and services on the Internet, including financial
services, e-mail, e-commerce, news and lifestyle content. We believe that
consumers are increasingly seeking personalized and practical Internet
applications that they can use in their daily activities.
GROWTH OF DIGITAL WIRELESS COMMUNICATIONS
Digital wireless communications have grown rapidly due to declining consumer
costs, expanding network coverage, the availability of extended service features
such as voice and text messaging and the proliferation of wireless devices.
These wireless devices include personal digital assistants such as PalmPilot
connected organizers, and mobile phones such as the Neopoint 1000 and
Qualcomm PDQ, as well as two-way pagers such as those developed by Research In
Motion. Dataquest estimates that there were approximately 217 million digital
wireless subscribers worldwide at the end of 1998 and projects that this number
of subscribers will grow to approximately 828 million by the end of 2003. Recent
developments in wireless technology and deployment of digital data networks have
enabled the introduction of wireless data applications such as financial
services, news and lifestyle content.
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CONVERGENCE OF WIRELESS COMMUNICATIONS AND THE INTERNET
The convergence of wireless communications and the Internet has created new
opportunities for the delivery of wireless data services. Dataquest estimates
that the number of wireless data subscribers worldwide will grow from
approximately 16 million at the end of 1998 to approximately 111 million at the
end of 2003. We expect that the convergence of wireless communications and the
Internet will enable the delivery of wireless multimedia applications, including
voice, data, image and video. International wireless technology groups, such as
the Wireless Application Protocol Forum and the Symbian Alliance, have created
global standards for the transmission of wireless applications, which we believe
will lead to mass penetration of the market for wireless devices and services.
GROWTH OF E-COMMERCE
With the emergence of the Internet as a globally accessible, fully
interactive medium, many individuals and companies that have traditionally
conducted business in person, through the mail or over the telephone now
increasingly conduct business electronically. We expect that consumer use of
e-commerce will accelerate as more individuals gain access to the Internet, as
the cost of Internet access decreases and as security concerns are alleviated.
In some parts of the world, particularly in a number of European and Asian
countries, e-commerce opportunities have been limited because credit cards,
which are currently the only secure form of on-line payment, are not widely
used. We expect these consumers to embrace e-commerce once a direct payment
system is available. According to IDC, Internet users worldwide were expected to
purchase more than $100 billion in goods and services in 1999, increasing to
$1.3 trillion in 2003.
GROWTH OF ON-LINE FINANCIAL SERVICES
THE OPPORTUNITY. Financial services are well suited for Internet
e-commerce. Consumers are increasingly conducting on-line transactions with
banks and securities brokers. These transactions can be faster, less expensive
and more convenient than transactions conducted through a broker, teller
or ATM. IDC expects that the number of users banking on-line in the U.S. will
increase from eight million in 1998 to approximately 40 million by the end
of 2003. In addition, IDC expects the number of on-line brokerage accounts to
continue to grow rapidly from six million in 1998 to 24 million in 2002. The
growth of electronic financial services has intensified price-based competition
among providers of financial services and has increased consumer expectations
for value-added services. Traditional financial institutions are at risk of
having their consumer base eroded by emerging on-line competitors, who are
driving the shift in the delivery of financial products and services from the
traditional physical infrastructure to electronic channels. This potential loss
of consumers creates a sense of urgency for traditional financial institutions
to respond with strategies that build on their unique trust relationship with
consumers and the strengths of their traditional channels and services.
Traditional financial institutions are well positioned to overcome consumer
concerns about security and to drive adoption of on-line services by their large
and attractive customer base. We believe that the increasing popularity of new
Internet-enabled devices will generate greater demand for on-line financial
services and provide an opportunity for financial institutions to deliver secure
personalized service to their consumers.
THE CHALLENGE. Large financial institutions have made significant
investments in computer systems that were not designed to facilitate e-commerce.
As consumers increasingly demand services through the Internet and other
electronic channels, financial institutions require a solution that enables
their existing systems to exchange information with their consumers across a
variety of Internet-enabled devices. This exchange requires a complex bridging
architecture that can interface with a variety of access devices, communication
protocols, operating systems, and network and security technologies. The
solution must also be secure, to protect the integrity and confidentiality of
information, and scalable, to
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process an increasing number of transactions. The ideal solution must also
enable rapid deployment and the flexibility to add additional functions and
services.
THE 724 SOLUTION
We provide an Internet infrastructure solution that enables the delivery of
secure and personalized electronic information services, transactions and
payments using a broad range of mass-market wired and wireless Internet-enabled
devices, including digital mobile phones, personal computers and personal
digital assistants.
We are initially focused on providing our solution to large financial
institutions worldwide. Financial institutions are in a position to use their
large consumer base and unique trust relationship with consumers to accelerate
the adoption of on-line financial services. Our solution provides a robust and
scalable platform that enables financial institutions to deliver branded
financial services to their consumers on Internet-enabled devices in a
personalized, secure and cost efficient manner.
Our platform uses an open architecture and industry standards. The
architecture has been specifically designed to be extendable, allowing for the
addition of new devices, content and services.
724 SOLUTIONS FINANCIAL SERVICES PLATFORM
[Diagram]
[The diagram illustrates that different types of consumer devices connect to
network access providers. These network access providers connect to 724's
network and device gateway. 724's network and device gateway connects to 724's
services infrastructure, which connects to 724's transaction and content
gateway. The transaction and content gateway connects to financial institutions,
merchants and content providers. The administrative function supports the
overall architecture and provides a feed to a data warehouse. Security is
provided between each of these points in the system.]
Our architecture has four major components:
- THE NETWORK AND DEVICE GATEWAY provides access to a variety of
Internet-enabled devices and networks to ensure a consistent consumer
experience. Our platform automatically determines the appropriate
presentation of information for the device being used.
- THE SERVICES INFRASTRUCTURE enables: consumer applications, such as
banking, brokerage and e-commerce; personalization of the user experience;
notification services based on the consumer's interests and priorities;
and targeted marketing services. The services infrastructure also enables
session management, which ensures the continuity of a transaction over the
network. The architecture is supported by an overall administrative
function designed for easy and efficient management.
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- THE TRANSACTION AND CONTENT GATEWAY connects to a financial institution's
existing infrastructure through a server using Open Financial Exchange
(OFX) or Extensible Markup Language (XML), two communication standards
that permit the electronic exchange of data, and to merchants and content
providers through the use of XML.
- THE SECURITY LAYER provides security throughout the communication and
payment process from the consumer through to the network service provider.
Our solution is compatible with existing security technology used by
financial institutions and wireless and other network service providers.
We believe our solution will enable financial institutions to maintain and
deepen consumer relationships and accelerate the adoption of Internet-based
financial services. Our solution can be rapidly implemented, integrates easily
with existing systems, addresses security issues, is scalable and provides a
robust platform for future growth. Key benefits of our solution include:
- SPEED TO MARKET: Launched in May 1999, our solution can be rapidly
installed, branded and offered to consumers.
- EASE OF INTEGRATION WITH EXISTING SYSTEMS: Our platform links to a
financial institution's existing systems, enabling financial institutions
to preserve their existing investment, and to extend the productivity and
functionality of their existing infrastructure to new electronic channels.
- SECURITY: The security framework of our platform addresses financial
institutions' stringent security standards, creating an environment of
trust for consumers and allowing merchants to offer e-commerce services
with reduced fraud related concerns.
- SCALABILITY AND MANAGEABILITY: Our solution is designed to add users
efficiently and effectively. We believe that it can support significant
growth in users with little increase in infrastructure. It has a built in
set of tools to easily manage recovery, redundancy and deployment.
- ABILITY TO EXPAND FUNCTIONALITY: Our platform is designed to facilitate
the addition of new devices, content and services. It provides a robust
platform for the growth of electronic financial services and e-commerce.
- MAINTAIN AND DEEPEN CONSUMER RELATIONSHIPS: Our solution allows financial
institutions to connect directly with consumers wherever they can obtain
wired or wireless Internet access. Our solution also allows consumers to
set up their own personal preferences and alerts for an easy to use
experience. The information contained in the personalization and
notification databases provides our customers with a competitive advantage
in building consumer loyalty through the delivery of value-added services.
We believe that our solution benefits our customers and the companies with
which we have strategic relationships by enabling the delivery of differentiated
on-line financial services. These services increase consumer loyalty and drive
wireless airtime usage, consumer electronic device sales, and the purchase of
other products and services.
OUR STRATEGY
Our objective is to become the leading provider of an Internet
infrastructure for the secure delivery of services using a broad range of
Internet-enabled devices. Our strategy is to:
FOCUS ON LARGE FINANCIAL INSTITUTIONS: We are initially focusing on
providing our solution to large financial institutions worldwide, particularly
banks and brokerage firms. We believe that large financial institutions have
both the scale and global consumer base to maximize the adoption of services
based on our product. Financial institutions that have an aggregate of
approximately 152 million customer relationships worldwide are in various stages
of implementing our solution. We believe that the trust
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relationship these institutions have with consumers, combined with our secure
payment infrastructure, will accelerate consumer adoption of on-line financial
services and e-commerce transactions.
ACCELERATE WORLDWIDE ADOPTION OF OUR SOLUTION: In an effort to encourage
rapid deployment of our solution by financial institutions, we are:
- Establishing relationships and alliances worldwide with wireless and other
network service providers, device manufacturers and content and technology
providers;
- Providing a compelling consumer experience through a consistent
user-friendly interface on a variety of Internet-enabled devices;
- Building a worldwide application hosting service; and
- Reducing our customers' initial cost of using our solution by charging a
variable license fee based on the number of users per month.
EXPAND OUR PLATFORM: Our architecture is designed to be extendable,
enabling our customers to continue to offer additional on-line services across a
variety of protocols, operating systems, networks and devices to maximize
consumer reach. We expect to further expand our reach by supporting additional
devices and broadening our functionality by introducing new applications,
content and services. For example, through our strategic relationship with
Sonera SmartTrust we plan to integrate into our solution public key
infrastructure (PKI), technology which facilitates the management of the tools
necessary to ensure authentication of user identity and the non-repudiation of
transactions. We believe this security feature is essential for the widespread
adoption of e-commerce transactions. Additionally, we have established our
Advanced Technology Center (ATC) to, among other things, gain early access to
device, wireless and network technologies.
PURSUE SELECTIVE ACQUISITIONS TO EXPAND OUR CAPABILITIES: We intend to
pursue acquisitions of companies and technologies that we believe will allow us
to quickly increase the scale and scope of our operations, such as expanding our
research and development team, expanding into new geographical markets or
industry sectors and providing new services.
DEVELOP APPLICATIONS FOR OTHER SECTORS: Once we have established a
significant presence in the financial services sector, we expect to use many of
the components of our architecture in other industries such as insurance, sales
force management and logistics.
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OUR PLATFORM AND RELATED SERVICES
Our platform enables the delivery of secure and personalized electronic
information, services, transactions and payments using a broad range of
mass-market wired and wireless Internet-enabled devices. Our platform is
extendable across a wide array of protocols, operating systems and networks,
enabling financial institutions to deliver personalized transactions, services
and information to their customers over a wide range of communications networks.
Our platform architecture is illustrated below:
[Diagram]
[The diagram illustrates that 724's network and device gateway connects with
724's services infrastructure. The services infrastructure consists of consumer
applications, (including banking, brokerage and e-commerce services),
personalization, notification and alerts, targeted marketing services, session
management. The services infrastructure connects to 724's transaction and
content gateway. The administration function supports the overall architecture
and provides a feed to a data warehouse. Security is provided between each of
these points in the system.]
NETWORK AND DEVICE GATEWAY
The network gateway transforms data from our platform into formats suitable
for use in a wide variety of wired and wireless networks including Code Division
Multiple Access (CDMA), Global System for Mobile Communication (GSM), Time
Division Multiple Access (TDMA), Cellular Digital Packet Data (CDPD), Mobitex
and Internet Protocol. Almost all digital mobile systems worldwide use one of
these major types of wireless access formats for voice and data communications.
This gateway enables our customers to quickly deploy their services through
multiple network service providers and allows for new protocols to be supported
without changes to our architecture.
The device gateway supports the presentation of our applications on multiple
devices. It recognizes the type of device a consumer is using and optimizes the
format of the information for the characteristics of that particular device
type. Our software automatically formats information delivered to a device using
style sheets programmed in Extensible Markup Language (XML) or Extensible Style
Language (XSL), a widely used language in Internet communications. This approach
enables our customers to deliver services over many types of access devices, and
allows new devices to be supported without changes to our architecture. The
network and device gateway ensures consumers receive a consistent and
user-friendly experience regardless of the device used.
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SERVICES INFRASTRUCTURE
CONSUMER APPLICATIONS. Our platform enables the delivery of applications
that include the following:
BANKING
- account information and statements
- credit card statements
- intra-bank transfers
- bill payment
- bill presentment*
SECURITY ANALYSIS
- trading data and charting
- detailed stock quotes
- watchlists
- alerts
E-COMMERCE*
- direct purchase and payment
- travel services
BROKERAGE
- investment statements
- holdings and activities
- balances and open orders
- order placement and confirmation*
INFORMATIONAL
- news
- weather
- horoscopes
- lottery results
----------------------------
* Expected to be offered by our customers in the year 2000.
These applications are designed to be easy to use by consumers and provide
functions that can be quickly delivered to market.
PERSONALIZATION. Our solution enables consumers to customize their services
through a single set-up procedure. Once completed, a consumer's preferences are
stored in a unique profile on the network rather than on a specific device.
Thereafter, a consumer may use any Internet-enabled device to access his or her
account to retrieve information and conduct transactions without repeating the
set-up procedure. Changes in preferences made by a consumer on one device will
automatically be reflected on all other devices used by that consumer.
NOTIFICATION AND ALERTS. Our platform allows consumers to be notified
immediately of specific events such as stock price movements or releases of
relevant research. In the future, we expect that our platform will allow
notification of changes in a bank account balance above or below a previously
specified amount. The notification service supports a variety of alert
mechanisms such as text messages using e-mail and standard mobile network short
messaging service (SMS), which facilitates the transmission of messages between
subscribers and external systems such as e-mail, paging and voicemail.
TARGETED MARKETING SERVICES. Using data generated from personalized
profiles, financial institutions have the ability to gain a better understanding
of their consumers' needs and interests. Our targeted marketing service allows
the distribution of information directly to their consumers with personalized
messages or services based on their preferences.
SESSION MANAGEMENT. Our platform's session management system ensures
continuity of a transaction over the network. For example, if a user is
disconnected during a transaction but is able to reconnect within a prescribed
period of time, the user can complete the transaction without repeating the log
in process or previous entries.
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ADMINISTRATION
The administration functions allow our platform to be managed within a
customer's existing computer infrastructure. Through these services, platform
administrators can start and stop individual servers, add or remove resources
such as hardware from the platform without disrupting service, monitor
performance and perform system back-up procedures. These administration services
can be integrated with popular systems management tools allowing our platform to
be monitored as part of a financial institution's overall computing environment.
We provide a feed into a data warehouse of all transactions recorded by the
system.
TRANSACTION AND CONTENT GATEWAY
Our platform interfaces with the existing systems of financial institutions
through the transaction and content gateway. This connection is made using Open
Financial Exchange (OFX), an industry standard specification for the exchange of
financial data between financial institutions and consumers through the
Internet, or using Extensible Markup Language (XML). Merchants and content
providers connect to our system through an XML interface. This gateway allows
customers to quickly and easily connect to our platform and to extend the value
of their existing systems.
SECURITY
Our security framework is based on a strict methodology of threat
evaluation, risk analysis and policy creation, designed to address
authentication, authorization, privacy, integrity and non-repudiation. A
conventional user id/password mechanism provides user identification and
authentication. Our software incorporates standard cryptography protocols that
ensure the confidentiality of communications between servers, including Secure
Socket Layer (SSL) and Transport Layer Security (TLS), enhanced with Elliptical
Curve Cryptography (ECC) cypher-suites from Certicom, to ensure the privacy of
transactions and communications. These security technologies require minimal
computing power for encrypting and decrypting messages, making them well suited
for secure communications to wireless handheld devices. We are currently working
with Sonera SmartTrust, a division of Sonera Corporation, to incorporate Public
Key Infrastructure (PKI) technology into our applications to provide additional
support for user authentication and non-repudiation. Use of PKI technology,
which supports digital signatures, is expected to grow as a means of creating a
secure e-commerce environment over the Internet or virtual private networks.
This security framework addresses financial institutions' rigorous security
requirements, creating an environment of trust for consumers and allowing
merchants to offer e-commerce services with reduced fraud related concerns.
IMPLEMENTATION AND CUSTOMER SERVICE
We offer our customers consulting services regarding the installation and
deployment of our platform as well as ongoing product support. Services offered
during installation include training, configuration and connectivity to existing
systems. We believe that our customer support and consulting services result in
improved customer satisfaction and loyalty, a shorter sales process, faster
implementation and an increase in the sales of our product.
Customers have the option of implementing our solution using their in-house
personnel or using personnel provided by one of our designated third party
service providers. We bring together and coordinate the technology and resources
needed to deliver a single solution to customers who do not wish to use their
in-house resources to implement our solution.
APPLICATION HOSTING SERVICE
We are establishing an application hosting service to host and manage the
server infrastructure and software platform for our customers. These application
hosting facilities will support the scalability of
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our platform. We expect to provide these services worldwide, with facilities
based in Europe, Asia and North America. We may acquire or partner with third
parties to provide this service. We may also provide this service by
establishing application hosting facilities of our own or through a combination
of these strategies. We expect to incur significant expenses in the year 2000 in
order to establish application hosting facilities requested by our customers or
potential customers.
TECHNOLOGY
Our open-architecture platform communicates with our customers' systems via
an industry standard called Open Financial Exchange (OFX) gateway. Our platform
supports connectivity with Windows NT, the Internet, and database servers
compliant with Open Database Connectivity (ODBC), a standard protocol for
accessing database servers. We are enhancing our platform to support Sun
Microsystems' Solaris operating system and other standards including Financial
Information Exchange (FIX), a messaging standard that permits real-time
electronic securities transactions. Our open architecture allows us to
continually integrate best-in-class technology, ensuring that our customers'
needs are met on a timely basis.
Our architecture complies with Common Object Request Broker Architecture
(CORBA), a standard for applications software design used widely in the software
industry. We also use other widely accepted standards in developing our product,
including the following:
- encryption technologies such as Certicom's Elliptical Curve Cryptography
(ECC) and Secure Socket Layer (SSL), and RC4, a technology that permits
the encryption of large amounts of data;
- Hypertext Transfer Protocol (HTTP), the fundamental transport protocol for
Internet access on a client and server system; and
- Simple Mail Transport Protocol (SMTP), a standard protocol for e-mail
transmissions among different types of systems.
We are a full member of the Wireless Application Protocol Forum, an industry
association that has developed a leading standard for wireless information and
telephony services on digital mobile phones and other digital wireless devices.
Members of this organization include network service providers, device
manufacturers, leading infrastructure providers and software developers.
Our programs are written in C++ and Java, widely accepted standard
programming languages for developing object-oriented applications. We also make
extensive use in our software applications of Extensible Markup Language (XML),
which was completed by the World Wide Web Consortium in 1998.
RESEARCH AND DEVELOPMENT
As of December 20, 1999, our research and development department consisted
of 102 people in four business units: program management, product definition,
architecture and product development. These units are responsible for assessing
new technologies, new release schedules, product architecture, security,
performance engineering, product requirements, quality assurance and product
support.
Our research and development expenditures were $44,000 in the period from
July 28, 1997 (inception) to December 31, 1997, $2.1 million for the year ended
December 31, 1998 and $4.5 million for the nine months ended
September 30, 1999.
In August 1999, we established our Advanced Technology Center (ATC) as part
of our architecture group. The ATC is primarily a research center focused on
rapidly developing innovative technologies from the concept stage to the
prototype stage. The ATC's main objectives are to gain early access to emerging
technologies, improve our products and services, expedite deployment to our
customers and
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create mutually beneficial relationships with customers, network service
providers and device manufacturers. As of December 20, 1999, the ATC employed
11 individuals with expertise in specialized areas such as carrier, database and
encryption technologies. To reflect the importance of the ATC in our research
and development process, we plan to increase the size of this group.
In July 1999, we established the Performance Engineering Group (PEG), a
group within our architecture group. The objective of PEG is to establish
benchmarks for our technology, to recommend and validate reference architectures
and to provide feedback to the architecture and product groups. We invest
heavily in performance engineering to ensure that our solution will be scalable
for large numbers of users and transaction volumes.
CUSTOMERS
We currently market our product and services to large financial institutions
such as banks and brokerages. Bank of Montreal, Bank of America, Citigroup and
Wells Fargo are in various stages of implementing our solution.
BANK OF MONTREAL
Bank of Montreal is a leading Canadian bank, which as of October 1999,
including its U.S. subsidiaries, had approximately Cdn.$231 billion in total
assets and approximately seven million retail customers. Bank of Montreal is a
fully integrated financial institution offering brokerage services through its
broker subsidiaries.
In May 1999, our platform enabled Bank of Montreal to become the first
financial institution in North America to launch an integrated wireless banking
and brokerage application in a market trial with approximately 350 users. This
service, named Veev, supports the delivery of banking, brokerage and lifestyle
applications through wireless phones and PalmPilot connected organizers. Bank of
Montreal has announced the success of its market trial and is currently in the
process of rolling out the Veev service throughout Canada.
In December 1999, Harris Bank, a U.S. subsidiary of Bank of Montreal,
announced its plans to commence a market trial of an on-line service based upon
our solution to customers in the Chicago, Illinois area.
BANK OF AMERICA
Bank of America, with $621 billion in assets as of September 30, 1999, is
the parent company of Bank of America, N.A., the largest bank in the U.S. The
bank serves more than 30 million households and 2 million businesses across the
country. Bank of America is a leading on-line banking provider in the U.S., with
more than 1.6 million on-line customers.
In July 1999, Bank of America announced that it intends to begin piloting
wireless on-line banking services using our solution in 2000.
CITIGROUP
Citigroup is a leading global financial institution which as of June 30,
1999 had approximately $690 billion in total assets and 100 million customer
relationships with consumer operations in more than 50 countries.
In August 1999, Citigroup announced its intention to implement our solution
worldwide under the leadership of its e-Citi division. In December 1999, we
entered into a master technology license agreement with Citicorp Strategic
Technology Corporation, a subsidiary of Citigroup, which will enable us to
license our technology to Citigroup and its affiliates. We expect to enter into
one or more
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additional agreements with Citigroup and a number of its subsidiaries, including
Citibank and Salomon Smith Barney Inc., to deliver our solution to their
customers worldwide.
WELLS FARGO
Wells Fargo is a diversified financial services company providing banking,
insurance, investments, mortgage and consumer products and services. As of
September 30, 1999, Wells Fargo had $203 billion in assets and approximately
15 million customers.
In September 1999, Wells Fargo entered into a licensing agreement with us
that would enable it to begin to deliver on-line banking services to its
customers in 2000.
STRATEGIC RELATIONSHIPS
We are establishing worldwide relationships with wireless and other network
service providers, device manufacturers, technology companies and content
providers to facilitate the adoption of our customers' on-line products and
services. Through strategic relationships, we are able to gain technological
leadership, worldwide access and positioning and an early awareness of emerging
Internet technologies. Our participation in the development of these
technologies at an early stage gives us a competitive advantage to bring new
products and services to our customers. Currently, we are working with network
service providers such as Bell Mobility and Sprint; device manufacturers such as
3Com, Ericsson, Motorola, Neopoint, Nokia, Qualcomm and Research In Motion;
software and technology companies such as Certicom, Sonera and Sun Microsystems;
and system integrators such as Deloitte & Touche. We believe that our solution
benefits each of these types of companies as greater demand for digital wireless
financial services increases consumer loyalty and drives wireless airtime usage,
consumer electronic device sales and the consumption of other products and
services.
SALES AND MARKETING
As of December 20, 1999, we employed 20 people in sales. We intend to hire
additional people as we expand our Toronto sales team and establish sales teams
in New York, San Francisco, the U.K., continental Europe and the Asia Pacific
region. Our sales employees receive incentive compensation based on individual
sales volume. Deloitte & Touche assists us in selling and in implementing our
solution directly to large financial institutions worldwide.
As of December 20, 1999, we employed eight people in our marketing
department. Our marketing strategy consists of the following elements:
- DEFINE AND SELL OUR CATEGORY: We are driving a new category of consumer
services through a branding campaign for the personal financial
marketplace. We believe this will raise consumer expectations and create
demand for new services, while enabling financial institutions to meet
these expectations and demands.
- BUILD OUR IMAGE: We are seeking a corporate image that reflects
leadership, an understanding of our customers' business, technological
innovation and credibility. To achieve this, we intend to establish joint
marketing campaigns to showcase the success of our customers and the
network service providers and device manufacturers with whom we work.
- SEEK MARKET LEADERSHIP: By selling and deploying our solution to leading
financial institutions, we seek to gain early market share in the
provision of on-line solutions for financial institutions. Where possible,
we will take advantage of opportunities to conduct marketing activities
with our customers and the network operators and device manufacturers with
whom we work to create marketing programs.
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COMPETITION
The market for our product and services is becoming increasingly
competitive. The widespread adoption of open standards may make it easier for
new market entrants and existing competitors to introduce products that compete
against ours. We believe that we will compete primarily on the basis of the
quality, functionality, ease of integration of our product and price of our
services. As a provider of a comprehensive Internet solution to financial
institutions, we assess potential competitors based primarily on their
management, functionality and range of services, the security and scalability of
their architecture, and their client base, geographic focus and capitalization.
Our current and potential competitors include:
- FINANCIAL INSTITUTIONS WITH IN-HOUSE SOLUTIONS: Financial institutions
that develop their own in-house solution with internal expertise and
outsourced service providers and products are a primary source of
competition. These include Celestial Securities Limited's wireless trading
service in Hong Kong; the wireless trading capability developed by
Fidelity using Research In Motion's two-way pagers and the wireless
trading service offered by DLJ Direct in the U.S.; the wireless brokerage
service provided by the on-line broker Fimatex in France; and a wireless
banking service offered by Barclays in the U.K.
- SOFTWARE VENDORS FOCUSED ON FINANCIAL INSTITUTIONS: Competitors include
Aether Systems and w-Trade. In addition, various companies active in the
Internet banking and brokerage businesses with a primary focus on back-end
processing, middleware or front-end personal computer platforms for retail
Internet banking are potential competitors. These include companies such
as S1 Corporation, CosmosBay, Brokat, TIBCO Software and Sanchez Computer
Associates.
- NETWORK SERVICE PROVIDERS: Sprint and BellSouth in the U.S. and NTT
DoCoMo in Japan are leaders in wireless data services. NTT DoCoMo provides
consumers with wireless banking services from over 50 banks as part of its
recently launched i-Mode service. Other network service providers with
advanced wireless data service initiatives include US West, Bell Atlantic,
AT&T Wireless Data Services, Nextel, Airtouch and Omnipoint in the U.S.,
Vodafone, British Telecom, Cellnet, Orange and One 2 One in the U.K.,
Deutsche Telecom in continental Europe, J-Phone, DDI and IDO in Japan,
SingTel and MobileOne in Singapore, and Telstra, Optus and Vodafone in
Australia.
- DEVICE MANUFACTURERS: Ericsson, Motorola, Nokia and Matsushita are
pursuing wireless data service opportunities. Nokia recently announced
that it is working with Deutsche Bank's direct banking unit on a wireless
banking application, and that it plans to work with TD Waterhouse in North
America to develop a wireless trading service.
- SOFTWARE VENDORS, SERVICES VENDORS AND PORTALS: Companies that provide
browsers for digital mobile phones and the infrastructure to link devices
to network service providers and the Internet, such as Phone.com and
Microsoft MSN, are positioning themselves for the dramatic growth of
wireless data services. Companies offering wireless data services such as
e-mail, calendar access, aggregation of content, and a mobile e-commerce
platform include InfoSpace.com, mobilefinance.com, Wireless Knowledge (a
joint venture between Qualcomm and Microsoft), Research In Motion, Go
America, EmailPager, Logica, CMG and portals, such as America Online,
Yahoo! and Excite@Home. Software companies primarily focused on commercial
wireless applications are potential competitors in the future, including
Qualcomm Wireless Business Systems, Nettech Systems, Dynamic Mobile Data
and Mobimagic Co., a newly formed joint venture between Microsoft and NTT
Mobile.
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INTELLECTUAL PROPERTY RIGHTS
We protect our proprietary technology through a combination of contractual
confidentiality provisions, trade secrets, and patent, copyright and trademark
laws. We have applied for patents and to have several of our trademarks
registered, including "724 Solutions", "724 Solutions & Design" and "E-Anywhere"
in Canada and "724 Solutions" and "724 Solutions & Design" in the U.S. To date,
none of these patents has been issued and none of these trademarks has been
registered. Despite the measures we have taken to protect our intellectual
property, we cannot assure you that third parties will not breach the
confidentiality provisions in our contracts or infringe or misappropriate our
copyrights, pending patents, trademarks and other proprietary rights. We may not
be able to secure patent or trademark registrations for all of our patent
applications or trademarks. We cannot assure you that third parties will not
independently discover or invent competing technologies or reverse engineer our
trade secrets, software or other technology. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same extent as do the
laws of the U.S. and Canada. Therefore, the measures we are taking to protect
our proprietary rights may not be adequate.
We also rely on technology and other intellectual property licensed to us by
third parties. For example, we have entered into a license agreement with
Certicom and Consensus for use of their encryption technology. We have also
entered into license agreements with third party content providers. In addition,
we use certain third party software that may not be available to us on
commercially reasonable terms or prices or at all in the future. Moreover, some
of our license agreements are non-exclusive, and therefore, our competitors may
have access to the very same technology licensed to us.
To date, we have not been notified that our product infringes on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to our existing or future products. Any claim of this kind,
whether or not it has merit, could result in costly litigation, divert
management's attention, cause delays in product installation, or cause us to
enter into royalty or licensing agreements on terms that may not be acceptable
to us.
EMPLOYEES
As of December 20, 1999, we had a total of 184 employees. None of our
employees is covered by any collective bargaining agreements. We believe that
our relations with our employees are good.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
FACILITIES
Our registered and head office is located in Toronto, Ontario in a
75,014 square foot facility under a lease which expires in 2005.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our executive
officers and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- -----
<S> <C> <C>
Gregory Wolfond.......................... 38 Chairman and Chief Executive Officer
Christopher Erickson..................... 34 President, General Counsel, Secretary and
Director
Andre Boysen............................. 35 Chief Technology Officer and Director
Kerry McLellan........................... 38 Chief Operating Officer and Director
Karen Basian............................. 37 Chief Financial Officer
Mina Wallace............................. 44 Executive Vice President of Field
Operations
Alistair Rennie.......................... 34 Senior Vice President of Marketing
Lloyd F. Darlington...................... 54 Director
Martin A. Stein.......................... 59 Director
James D. Dixon........................... 56 Director
Harri Vatanen............................ 37 Director
Alan Young............................... 33 Director
</TABLE>
GREGORY WOLFOND. Mr. Wolfond co-founded our company in July 1997 and has
served as Chief Executive Officer since September 1997 and Chairman since April
1998. In 1987, Mr. Wolfond founded Footprint Software Inc., a financial services
software company specializing in object-oriented agent and sales technologies
with an emphasis on branch automation. At Footprint, Mr. Wolfond helped to
develop systems designed for ease of use across large financial institutions.
IBM purchased Footprint in May 1995, and Mr. Wolfond continued to serve as Chief
Executive Officer of Footprint until July 1997. While at IBM, Mr. Wolfond helped
develop IBM's network computing technology for the financial services industry.
Mr. Wolfond has a BA in Computer Science from the University of Western Ontario.
Mr. Wolfond resides in Toronto, Ontario.
CHRISTOPHER ERICKSON. Mr. Erickson co-founded our company with
Mr. Wolfond. He has served as President and General Counsel since our inception
and as a director since July 1998. In 1989, he founded Cygnus Computer
Associates Ltd., a software engineering firm that specialized in developing
client-server applications. While continuing to act as President of Cygnus he
joined Fasken Campbell Godfrey, a Canadian law firm, as a corporate/commercial
technology lawyer in 1994. In July 1997 he sold his interest in Cygnus and left
Fasken Campbell Godfrey to start our company. He is a director of the
Washington, D.C. based Computer Law Association and Chairman of the E-Commerce
Subcommittee of the Investment Funds Institute of Canada. He has also served as
a director of the Foundation for Responsible Computing and as a director and
general counsel to the Interactive Multimedia Arts and Technologies Association.
Mr. Erickson is a graduate of the computer engineering program (B.Sc.) at the
University of Waterloo and of the University of Toronto Law School (LLB). He is
a licensed professional engineer (P.Eng.) and a lawyer qualified to practice in
Ontario. Mr. Erickson resides in Toronto, Ontario.
ANDRE BOYSEN. Mr. Boysen has served as our Chief Technology Officer since
March 1998 and as a director since July 1998. He has extensive experience in the
financial software and telecommmunications industry. Mr. Boysen acted as Chief
Technology Officer for Footprint between March 1996 and March 1998. As CEO of
Footprint's Asia Pacific operations between 1994 and 1996, he established its
operations in Australia, New Zealand, Hong Kong, Singapore and Thailand. Between
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1990 and 1994, he served as CEO of Open Systems Limited, which developed turnkey
client-survey systems for several large companies. He sold his interest in Open
Systems when he joined Footprint. Mr. Boysen has a B.Sc. in Computer Engineering
from the University of Ottawa and an MBA from the Richard Ivey School of
Business at the University of Western Ontario. Mr. Boysen resides in Toronto,
Ontario.
KERRY MCLELLAN. Dr. McLellan joined our company in August 1998 as Executive
Vice-President, Strategy. He was appointed a director in March 1999 and Chief
Operating Officer in April 1999. He has previously managed several service
companies including Applied Business Research Limited and Melansons Waste
Management. He has acted as a consultant for Canadian and U.S. banks, and
technology and telecommunications companies. He also was involved in the
establishment of Symcor, a Canadian multi-bank consortium for cheque and payment
processing. He holds a PhD in Business Strategy, specializing in technology and
banking from the Richard Ivey School of Business at the University of Western
Ontario. Dr. McLellan resides in Westfield, New Brunswick.
KAREN BASIAN. Ms. Basian joined our company as Chief Financial Officer in
February 1999. In September 1994, she joined Frito-Lay as Finance Director, and
became Director of Strategic Planning in July 1995. She served as Chief
Financial Officer and Vice-President, Finance at Hostess Frito-Lay from
September 1996 to February 1999. She has also held positions with Bain & Company
(from March 1989 to August 1994) where she served as a consultant and with
Deloitte & Touche (from September 1984 to December 1987) where she specialized
in international tax. Ms. Basian serves on the Board of the Alumni Association
for the University of Western Ontario. Ms. Basian has an Honors degree in
Business Administration from the University of Western Ontario, an MBA from IMD,
Lausanne, Switzerland and is a Chartered Accountant. Ms. Basian resides in
Toronto, Ontario.
MINA WALLACE. Ms. Wallace joined our company in April 1999 as Executive
Vice President of Field Operations. In 1991, she joined PeopleSoft Canada Co. as
Vice President of Sales, and became General Manager of Sales in 1996. Between
1986 and 1991, she held an executive sales position at Dun & Bradstreet
Software. Ms. Wallace has a Bachelor of Education and an MBA from the University
of Manitoba. Ms. Wallace resides in Toronto, Ontario.
ALISTAIR RENNIE. Mr. Rennie joined our company in April 1999 as Senior Vice
President of Marketing. In 1989, Mr. Rennie joined IBM as a business analyst and
held various product management and marketing positions with IBM until April
1999, becoming Program Director, Applications Server Marketing, in 1997.
Mr. Rennie has a BA in Economics and an Honors degree in Business Administration
from the University of Western Ontario. Mr. Rennie resides in Toronto, Ontario.
LLOYD F. DARLINGTON. Mr. Darlington has served as a director since
July 1998. Mr. Darlington was originally appointed to our board as a nominee of
Bank of Montreal under a shareholder agreement with our strategic investors.
Since May 1996, he has acted as Chief Technology Officer and General Manager of
Bank of Montreal. He is a director of Cebra Inc., Bank of Montreal's
wholly-owned electronic commerce subsidiary, and of Symcor Inc., a payment
processing corporation owned and operated by three of Canada's major financial
institutions. He began his career with Bank of Montreal in 1967 and, since 1980,
has held a variety of executive positions. Most recently, he served as Executive
Vice President, Operations from 1989 to 1996. Mr. Darlington received a BA in
English and Psychology from McGill University and an MBA from Concordia
University. Mr. Darlington resides in Toronto, Ontario.
MARTIN A. STEIN. Mr. Stein has served as a director since September 1998.
He is the President of Sonoma Mountain Ventures, a company he founded in
October 1998. Prior to founding Sonoma Mountain Ventures, Mr. Stein served as
Vice-Chairman of Technology and Operations of Bank America Corporation, was a
member of the bank's Office of the Chairman and served as
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Vice-Chairman of the capital budget committee. Mr. Stein joined Bank America in
June 1990 as Executive Vice-President. Before joining Bank America, Mr. Stein
served as Executive Vice President and Chief Information Officer of Paine Webber
in New York. Mr. Stein is a member of the board of several companies in the
financial services and technology industries, including Bank of Hawaii, Sequent
Computer Systems, LYNX Photonic Networks, Payment Net, FICS (a Belgian software
company), Evergreen Canada-Israel Investment and Wall Street Access. Mr. Stein
received a BA from Saint John's University, attended New York University's
Graduate School of Business, and received an Honorary Doctorate in Commercial
Science from Saint John's University. Mr. Stein resides in San Francisco,
California.
JAMES D. DIXON. Mr. Dixon has served as a director since June 1999.
Mr. Dixon was originally appointed to our board as a nominee of Bank of America
under a shareholder agreement with our strategic investors. He has served as
Group Executive of Bank of America Technology and Operations, a subsidiary of
Bank of America Corporation, since September 1998. From 1991 until the merger of
NationsBank Corporation and Bank America Corporation, Mr. Dixon served as
President of NationsBank Services, Inc. Prior to that, he served as Chief
Financial Officer of C&S/Sovran Corporation, a predecessor to NationsBank.
Mr. Dixon resides in Atlanta, Georgia.
HARRI VATANEN. Mr. Vatanen has served as a director since August 1999.
Mr. Vatanen was originally appointed to our board as a nominee of Sonera under a
shareholder agreement with our strategic investors. He is the founder and
President of Sonera SmartTrust and Senior Vice President of Sonera Corporation,
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. Mr. Vatanen has a Master of Science in telecommunications,
information technology, and economics from Helsinki University of Technology.
Mr. Vatanen resides in London, U.K.
ALAN YOUNG. Mr. Young has served as a director since August 1999.
Mr. Young was originally appointed to our board as a nominee of Citigroup under
a shareholder agreement with our strategic investors. Since March 1998, he has
served as Vice-President, Access Devices and Distribution Technologies for
e-Citi, a division of Citigroup. From March 1995 to March 1998, Mr. Young served
as Vice President of Engineering of Viacom Inc., where he had responsibility for
implementing Viacom's worldwide satellite distribution strategy. From
September 1991 to March 1995, he served as a Technical Manager for MTV Europe
where he had responsibility for developing MTV Europe's satellite distribution
strategy. Mr. Young graduated from the University of York with a Masters degree
in Engineering. From August 1988 to September 1991, Mr. Young worked for British
Telecom, developing service specifications for television satellite uplink
facilities. Mr. Young resides in New Canaan, Connecticut.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board has a stock option committee and a compensation committee.
STOCK OPTION COMMITTEE. The Stock Option Committee administers our stock
option plans, determining which individuals will receive grants of awards under
these plans, and the terms of these grants. The members of the Stock Option
Committee are Christopher Erickson and Andre Boysen.
COMPENSATION COMMITTEE. The Compensation Committee reviews and makes
recommendations to our board concerning the terms of the compensation packages
provided to our senior executive officers, including salary, bonus and awards
under our stock option plans and any other compensation plans that
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we may adopt in the future. The members of our Compensation Committee are
Gregory Wolfond, Martin A. Stein and Alan Young.
In addition to the above committees, we plan to establish an audit committee
to oversee the retention, performance and compensation of our independent
auditors, and the establishment and oversight of our systems of internal
accounting and auditing control. We plan to nominate Kerry McLellan, Lloyd F.
Darlington and James D. Dixon as members of our audit committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
For the year ended December 31, 1998, our aggregate cash compensation
payments to our executive officers and directors was $424,800.
The following table sets forth all compensation we paid to our Chief
Executive Officer and each of our executive officers whose total salary and
bonus exceeded Cdn.$100,000 (approximately $65,000) in the years indicated.
Other than Christopher Erickson, we did not compensate any of these individuals
in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING
OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION ($) GRANTED (#)
- --------------------------- -------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Gregory Wolfond
Chairman and Chief Executive Officer...... 1998 $179,400 $ -- --
Christopher Erickson 1998 97,500 -- 400,000
President and General Counsel............. 1997 26,700 -- --
Andre Boysen(1)
Chief Technology Officer.................. 1998 81,250 -- 400,000
Kerry McLellan(2)
Chief Operating Officer................... 1998 65,650 13,000 400,000
</TABLE>
- ------------------------
(1) Mr. Boysen joined our company in March 1998.
(2) Dr. McLellan joined our company in August 1998. In addition, the amount
under "Other Annual Compensation" includes a monthly travel allowance of
$2,600 in 1998.
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OPTION GRANTS DURING FISCAL 1998
We granted options under our Canadian stock option plan to the officers
named in the summary compensation table during the year ended December 31, 1998
as follows:
<TABLE>
<CAPTION>
MARKET VALUE OF
COMMON SHARES % OF TOTAL OPTIONS COMMON SHARES
UNDER OPTIONS GRANTED UNDER EXERCISE PRICE UNDERLYING OPTIONS ON
NAME GRANTED (#) PLANS IN 1998 (%) ($/SHARE) DATE OF GRANT(1)($) EXPIRATION DATE
- ---- ------------- ------------------ -------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Andre Boysen......... 400,000 21.4 $0.32 $0.32 March 2008
Kerry McLellan....... 400,000 21.4 0.32 0.32 August 2008
</TABLE>
- ------------------------
(1) There was no public market for our common shares as of December 31, 1998.
Therefore, the amounts set forth in this column represent the fair market
value of each of our common shares as of that date, as determined by our
Board.
OPTIONS EXERCISED IN LAST FISCAL YEAR
The officers named in the summary compensation table did not exercise any
options during the year ended December 31, 1998. The following table sets forth
the estimated value as of December 31, 1998 of the exercisable and unexercisable
options held by these officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT YEAR END (#) YEAR END ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS OF
U.S. DOLLARS)
Christopher Erickson........................... 266,666 133,334 $347 $173
Andre Boysen................................... 200,000 200,000 260 260
Kerry McLellan................................. 150,000 250,000 195 325
</TABLE>
- ------------------------
(1) 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. There
was no public market for our common shares as of December 31, 1998.
Therefore, the amounts set forth in this column represent the fair market
value of our common shares as of December 31, 1998, of $1.63 per share, as
determined by our board.
DIRECTOR, EMPLOYEE AND CONSULTANT STOCK OPTIONS
As of September 30, 1999, our directors, employees and consultants held
options to purchase an aggregate of 2,211,594 of our common shares. Our
executive officers held options to acquire 1,370,000 of these common shares,
exercisable at prices ranging from $0.34 to $1.71, expiring at dates ranging
from September 22, 2007 to February 22, 2009. Those of our board members who are
not executive officers held options to acquire 108,000 common shares,
exercisable at prices ranging from $1.71 to $3.75, expiring at dates ranging
from September 14, 2008 to August 16, 2009. Our employees, excluding our
executive officers, held options to acquire 673,594 common shares, exercisable
at prices ranging from $0.34 to $3.75, expiring at dates ranging from
February 2, 2008 to September 27, 2009. Our consultants held options to acquire
60,000 common shares exercisable at a price of $3.75, expiring August 2, 2004.
COMPENSATION OF DIRECTORS
We do not presently pay any cash compensation to directors for serving on
our board, but we do reimburse directors for out-of-pocket expenses for
attending board and committee meetings. Of our
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non-executive officers, only Martin A. Stein received stock options for his
participation on our board. In September 1998, Sonoma Mountain Ventures, a
consulting company controlled by Mr. Stein, received options under our Canadian
stock option plan to purchase 60,000 common shares at $1.71 per share.
EMPLOYMENT CONTRACTS
Each of our executive officers listed under "Management" has an employment
agreement with us. Each employment agreement provides each executive officer
with a compensation package which includes salary and benefits competitive with
industry standards and options to purchase common shares pursuant to our current
stock option plans. We retain all proprietary and intellectual property rights
in everything created, developed or conceived of by any of our employees while
employed with us. So long as any employee, including executive officers, is
employed by us, they are bound by non-competition and non-solicitation covenants
during their term of employment and for one year thereafter.
We have purchased a key-man employee insurance policy with respect to
Gregory Wolfond, our Chairman and Chief Executive Officer, providing coverage of
approximately $1.3 million.
STOCK OPTION PLANS
We currently have a Canadian stock option plan, a U.S. stock option plan,
and a new 2000 stock option plan, each of which is intended to attract, retain
and motivate key employees, officers, directors and consultants. The Stock
Option Committee of our board of directors administers the option plans. The
Stock Option Committee determines, among other things, the eligibility of
individuals to participate in the plans and the term, vesting periods and the
price of options granted under the plans. The board has reserved an aggregate of
6,300,000 common shares for issuance under the plans. However, upon completion
of this offering, we only intend to grant options from the 3,800,000 common
shares reserved for issuance under the new 2000 stock option plan. As of
September 30, 1999, options to purchase 2,211,594 shares at a weighted average
exercise price of $0.88 per share have been granted under the Canadian stock
option plan and no options have been granted under the U.S. stock option plan.
CANADIAN STOCK OPTION PLAN. This plan was adopted in September 1997 and
provides for the grant of options to employees, officers, directors and advisors
of our company and our affiliates. All options granted under the plan have a
maximum term of 10 years and will have an exercise price per share of no less
than the fair market value of our common shares on the date of the option grant.
If an optionee's employment is terminated without cause, the vested portion of
any grant will remain exercisable until their 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 unless the options would have vested within six months or
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 our company occurs, all options become
immediately vested and exercisable.
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 our company and our affiliates. 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 our
company. The exercise price of incentive stock options will be no less than the
fair market value of our common shares on the date of the grant, or 110% of the
fair market
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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 our 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
our 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 our 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. We have a right to repurchase shares from optionees
within 90 days after termination.
2000 OPTION PLAN. In December 1999, we adopted a new stock option plan, the
"2000 Stock Option Plan", which will be implemented upon completion of this
offering. Options granted under the existing plans will be unaffected by the
adoption of the new plan. Our Stock Option Committee will administer the new
plan. The Stock Option Committee will determine, among other things, the
eligibility of individuals to participate in the plan and the term, vesting
periods and price of options granted under the plan. The new plan will provide
for the grant of options to all employees, officers, directors and consultants
of our company and our 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 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 from time to time. The options granted under the new plan will have
a maximum term of 10 years and an exercise price no less than the fair market
value of our common shares on the date of the grant, 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 voting power. If a change of control
of our company occurs, all options granted under this plan will become fully
vested and exercisable.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
Under the Ontario Business Corporations Act, we are permitted to indemnify
our directors and officers and former directors and officers against costs and
expenses, including amounts paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which they are made
parties because of their position as directors or officers, including an action
against us. In order to be entitled to indemnification under this Act, the
director or officer must act honestly and in good faith with a view to our best
interests, and in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, the director or officer must have
reasonable grounds for believing that his or her conduct was lawful.
Under our by-laws, we may indemnify our subsidiaries' current and former
directors and our and our subsidiaries' current and former officers, employees
and agents. Our by-laws also provide that, to the fullest extent permitted by
the Act, we are authorized to purchase and maintain insurance on behalf of our
and our subsidiaries' current and past directors, officers, employees and agents
against any liability incurred by them in their duties. Our shareholder
agreement with our strategic investors listed under "Principal Shareholders"
also requires us to indemnify our directors under specified circumstances. We
believe that the provisions of our by-laws and the shareholders' agreement are
necessary to attract and retain qualified persons as directors and officers.
Currently, there is no pending litigation or proceeding where a current or
past director, officer or employee is seeking indemnification, nor are we aware
of any threatened litigation that may result in claims for indemnification. We
intend to increase the coverage provided under our current directors and
officers liability insurance policy.
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CERTAIN TRANSACTIONS
BANK OF MONTREAL
In April 1998, we entered into a license agreement with Bank of Montreal,
which currently holds 3,428,570 of our common shares. Under this agreement, we
have also agreed to provide to Bank of Montreal related support and maintenance
services. Bank of Montreal has agreed, through February 29, 2000, to license all
of our technology that is now, or that during the term of the agreement will be,
available to our customers. The license fee for the first two years of the
agreement was Cdn. $3.0 million annually. The license is extendable annually at
the option of Bank of Montreal, and Bank of Montreal has informed us that it
intends to extend the license for an additional one year term. With each
extension, Bank of Montreal's license will include any upgrades developed and
provided to or intended to be provided to our 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 us that is made generally available to our
customers. The fee for this additional technology will be equal to the lowest
price at which this technology is made available to our other customers that
process similar volumes of business with our solution.
Initially, Bank of Montreal had the right to be the exclusive Canadian
financial institution to which we would license our technology. In
November 1998, Bank of Montreal agreed to waive this right in return for a
refund of a portion of its annual license fee based on fees paid by each other
Canadian financial institution in each year in which its license is in effect.
Bank of Montreal will not be entitled to receive this refund if it does not
annually extend its general license.
BANK OF AMERICA
In June 1999, we entered into a license agreement with Bank of America,
National Trust & Savings Association, an affiliate of Bank of America and a
predecessor of Bank of America, N.A. Bank of America currently holds 3,200,000
of our common shares. Bank of America has agreed, through February 1, 2001, to
license all of our technology that is now, or that during the term of the
agreement will be, available to our customers. 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 provided to or
intended to be provided to our 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 annually 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 us that is made generally
available to our 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, we also entered into a software maintenance and support
agreement with Bank of America under which Bank of America pays an annual
maintenance fee. We charge 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.
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CITIGROUP
Citigroup has announced its intention to implement our solution worldwide
under the leadership of its e-Citi division. We are working with Citigroup and a
number of its subsidiaries, including Citibank and Salomon Smith Barney Inc., to
deliver our solution to their banking and brokerage customers. Citicorp
Strategic Technology Corporation, a subsidiary of Citigroup, currently holds
6,400,000 of our common shares.
In December 1999, we 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 our technology by entering into a separate agreement to be bound by
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 us, the term, and other material terms, may vary. To date, neither
Citicorp Strategic Technology Corporation or any other Citigroup affiliate has
entered into a definitive agreement under the master agreement to license any
technology from us.
Citicorp Strategic Technology Corporation is required to pay to us a
specified minimum amount during each year that the master agreement is in
effect, whether or not Citigroup or any Citigroup affiliates actually enters
into agreements under the master agreement to license our technology. These
required payments to us 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 our solution, the
number of Citigroup affiliates that license our technology and the amount of
revenue generated under this agreement. Our revenues under the master license
agreement will remain at the minimum amounts if we do not enter into additional
agreements under the master agreement.
We have agreed to provide to each Citigroup licensee maintenance services
relating to the technology that we license under the master agreement. These
maintenance services will include, among other things, the provision of updates
and upgrades to our technology that are generally made available to our
customers. The master agreement also provides that we will perform services for
Citigroup affiliates that license our 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 us for these services,
will be set forth in a separate agreement that will be entered into by us and
the applicable Citigroup affiliate.
We have 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 our
technology for adoption by Citigroup's affiliates. We will pay for these
services an amount that will be calculated based upon the number of Citigroup
affiliates that enter into agreements to license our technology during the first
year of the master agreement.
SONOMA MOUNTAIN VENTURES
Since August 1999, we have received consulting services from Sonoma Mountain
Ventures, an entity controlled by Martin A. Stein, one of our directors. Sonoma
provides, upon our request, strategic planning advice in connection with our
customer services. The consulting arrangement is for a two year term ending in
August 2001. Sonoma will receive a monthly fee of approximately $28,000,
together with options to purchase an aggregate of 48,000 of our common shares.
MCLELLAN PATENT APPLICATION
In July 1999, we entered into an agreement with Dr. Kerry McLellan, our
Chief Operating Officer, in which we purchased his rights under patent
applications filed in the U.S. and Canada relating to a
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security system for electronic transactions. We 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 we do not expect to incorporate into our product in the near future.
Under our agreement, we have agreed to pay Dr. McLellan a portion of any
licensing fees that we receive 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 us until a U.S. patent covering the technology is issued or
May 2002, whichever is earlier. We have 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.
BLUE SKY CAPITAL CORPORATION AND 1319079 ONTARIO INC.
In September 1997, we issued 3,999,800 common shares, together with an
option to purchase an additional 4,000,000 common shares, to Blue Sky Capital
Corporation, an entity controlled by our Chairman and Chief Executive Officer,
for an aggregate purchase price for the common shares and the option of
approximately Cdn. $2.0 million. The option was transferred to a second entity
under his control, 1319079 Ontario Inc., and was exercised in October 1998 at an
exercise price of Cdn. $0.50 per share.
REGISTRATION RIGHTS
We are a party to a shareholder agreement with all of our existing
shareholders. This agreement provides that, subject to specified limitations, if
we propose to register or qualify for public distribution of any of our common
shares under the securities laws of the U.S. or Canada, all of our existing
shareholders, other than those owning less than 5% of the issued and outstanding
common shares, have the right to include their common shares in the public
distribution. Furthermore, holders of 21,402,426 of our common shares acting as
a group, may require us to qualify a prospectus for, or effect the registration
of, all or part of the common shares in the public distribution. These demand
rights apply during the period commencing nine months after the date of this
offering and ending on the fourth anniversary of this offering. The number of
shares to be included in a public distribution can be limited by the
underwriters of that offering.
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PRINCIPAL SHAREHOLDERS
The following table provides information regarding the beneficial ownership
of our common shares as of December 15, 1999, and as adjusted to reflect the
sale of 6,000,000 common shares in this offering as to:
- each person or entity who beneficially owns more than 5% of our
outstanding common shares;
- each of our directors;
- each of the executive officers listed in the summary compensation table;
and
- all of our directors and executive officers as a group.
Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to all common shares held by them.
Percentage ownership is based on 29,402,426 shares of common shares outstanding
as of December 15, 1999, and 6,000,000 additional common shares to be issued in
this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE THE OFFERING AFTER THE OFFERING
- ---------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Gregory Wolfond(1).......................... 8,000,000 27.2% 22.6%
c/o 724 Solutions Inc.
4101 Yonge Street, Suite 702
Toronto, ON M2P 1N6 Canada
Sonera Corporation.......................... 6,400,000 21.8% 18.1%
P.O. Box 106, Fin-00051
Teollisuuskatu 15
Helsinki, Finland
Citigroup Inc.(2)........................... 6,400,000 21.8% 18.1%
153 East 53rd Street
New York, NY 10043
Bank of Montreal............................ 3,428,570 11.7% 9.7%
55 Bloor Street East
Third Floor
Toronto, ON
Canada M4W 3N5
Bank of America Corporation................. 3,200,000 10.9% 9.0%
Bank of America Corporate Center
100 North Tryon Street
Charlotte, NC 28255
Christopher Erickson(3)..................... 333,332 * *
Andre Boysen(3)............................. 266,666 * *
Kerry McLellan(3)........................... 233,332 * *
Martin A. Stein(4).......................... 34,000 * *
All directors and executive officers as a
group (12 persons)(5)..................... 8,867,330 29.3% 24.4%
</TABLE>
- ------------------------
* Less than 1% of the outstanding common shares.
(1) These shares are held of record by privately-held entities of which
Mr. Wolfond is the majority shareholder or has the sole power to vote and to
direct the disposition of their shares.
(2) These shares are held of record by Citicorp Strategic Technology
Corporation, a subsidiary of Citigroup Inc.
(3) These common shares are issuable upon the exercise of options that are
presently vested or that vest prior to February 28, 2000.
(4) Includes 20,000 common shares issuable upon the exercise of options that are
presently vested or that vest prior to February 28, 2000. Also includes
14,000 shares issuable upon the exercise of options that are presently
vested or that vest prior to February 28, 2000 that have been granted to
Sonoma Mountain Ventures, an entity controlled by Mr. Stein. See "Certain
Transactions."
(5) Includes 867,330 common shares that are issuable upon the exercise of
options that are presently vested or that vest prior to February 28, 2000.
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DESCRIPTION OF SHARE CAPITAL
AUTHORIZED AND ISSUED SHARE CAPITAL
COMMON SHARES
Our authorized share capital consists of an unlimited number of common
shares, of which 29,402,426 were issued and outstanding as of December 15, 1999.
Holders of common shares are entitled to one vote per share on all matters to be
voted on at all meetings of shareholders and to receive dividends as and when
declared by our board of directors. Upon the voluntary or involuntary
liquidation, dissolution or winding up of our company, the holders of common
shares are entitled to share ratably in our remaining assets available for
distribution, after payment of liabilities. A holder of common shares will have
no preemptive, redemption or conversion rights upon completion of this offering.
PREFERRED SHARES
Our articles provide that our board of directors has the authority, without
further action by the shareholders, to issue an unlimited number of preferred
shares in one or more series. These preferred shares may be entitled to dividend
and liquidation preferences over the common shares. The board is able to fix the
designations, powers, preferences, privileges and relative, participating,
optional or special rights of any preferred shares issued, including any
qualifications, limitations or restrictions. Special rights which may be granted
to a series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any of which may
be superior to the rights of the common shares. Preferred share issuances could
decrease the market price of the common shares and may adversely affect the
voting and other rights of the holders of common shares. The issuance of
preferred shares could also have the effect of delaying or preventing a change
in control of our company.
SHARE SPLIT
On December 30, 1999, we filed articles of amendment to split all of our
outstanding and reserved common shares on a two-for-one basis. Unless otherwise
specified, disclosure in the prospectus is based on post-split numbers.
PRIOR SALES
The following are the only transactions involving the sale of common shares
for the 12 months prior to December 15, 1999.
1. In June 1999, we issued 541,790 common shares for an aggregate
subscription price of $2.0 million.
2. In July 1999, we issued 950,000 common shares for an aggregate
subscription price of $3.6 million.
3. In August 1999, we issued 6,400,000 common shares for an aggregate
subscription price of $24.5 million.
4. In October 1999, we issued 5,450,000 common shares for an aggregate
subscription price of $20.8 million, 2,658,210 common shares for an
aggregate subscription price of $10.2 million, and 1,973,856 common
shares for an aggregate subscription price of $10.0 million.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for our common shares is Montreal Trust
Company of Canada, 8th Floor, 151 Front Street West, Toronto, Ontario M5J 2N1.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, a total of 35,402,426 common shares will be
outstanding (36,302,426 common shares if the underwriters exercise their
over-allotment option in full). All of the common shares sold in the offering in
the U.S. and Canada will be freely tradable without restriction under either the
Securities Act of 1933, except for any such shares which may be acquired by an
affiliate of ours, as that term is defined in Rule 144 promulgated under the
Securities Act of 1933 or applicable Canadian securities laws (except by
"control persons", as defined under these laws).
U.S. RESALE RESTRICTIONS
All of our common shares issued prior to this offering are "restricted
securities" as this term is defined under Rule 144, in that such shares were
issued in private transactions not involving a public offering and may not be
sold in the U.S. in the absence of registration other than in accordance with
Rule 144 under the Securities Act of 1933 or another exemption from
registration. In general, under Rule 144 as currently in effect, any of our
affiliates or any person (or persons whose shares are aggregated in accordance
with Rule 144) who has beneficially owned our common shares which are treated as
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
our outstanding common shares (approximately 354,024 shares based upon the
number of common shares expected to be outstanding after the offering) or the
reported average weekly trading volume in our common shares during the four
weeks preceding the date on which notice of such sale was filed under Rule 144.
Sales under Rule 144 are also subject to manner of sale restrictions and notice
requirements and to the availability of current public information concerning
our company. In addition, affiliates of our company must comply with the
restrictions and requirements of Rule 144 (other than the one-year holding
period requirements) in order to sell common shares that are not restricted
securities (such as common shares acquired by affiliates in market
transactions). Furthermore, if a period of at least two years has elapsed from
the date restricted securities were acquired from us or from one of our
affiliates, a holder of these restricted securities who is not an affiliate at
the time of the sale and who has not been an affiliate for at least three months
prior to such sale would be entitled to sell the shares immediately without
regard to the volume, manner of sale, notice and public information requirements
of Rule 144.
Upon closing of this offering, we intend to file a registration statement
for the resale of the common shares that are authorized for issuance under our
existing and new stock option plans. We expect this registration statement to
become effective immediately upon filing. Shares issued pursuant to our stock
option plans to U.S. residents after the effective date of that registration
statement (other than shares issued to our affiliates) generally will be freely
tradable without restriction or further registration under the Securities Act of
1933. As of September 30, 1999, options to purchase 2,211,594 common shares have
been granted under our stock option plan, of which none have been exercised.
We, along with our directors, executive officers and current shareholders
have agreed, for a period of 180 days after the date of this prospectus, not to
offer or sell any of our common shares, subject to limited exceptions, without
the prior written consent of Credit Suisse First Boston. See "Underwriting."
CANADIAN RESALE RESTRICTIONS
Excluding any common shares purchased in this offering, Canadian residents
hold 11,428,570 common shares and options or warrants to purchase
2,096,594 common shares. Under applicable Canadian securities laws, all such
common shares or common shares issuable upon exercise of such options may not be
sold or otherwise disposed of for value, except pursuant to a prospectus, a
discretionary exemption or a statutory exemption available only in specific
limited circumstances, until we have been a reporting issuer for at least
12 months in the province in which such shareholder or
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optionee resides. We will become a reporting issuer when we file this prospectus
with the securities regulatory authorities of those provinces and when those
authorities issue receipts for the prospectus. We expect that the receipts will
be issued on or about the date of this prospectus. We have applied to these
regulatory authorities for a discretionary exemption that would permit sales of
our common shares by residents of these provinces who are our employees and
acquired such shares upon the exercise of stock options after we have been a
reporting issuer for 180 days, provided that a particular employee has held the
common shares or stock options for a combined period of at least one year.
If the discretionary exemption is granted or other steps taken to allow the
sale of such common shares are successful, 1,564,938 common shares issuable upon
the exercise of outstanding and vested options will be eligible for resale
180 days after the completion of this offering.
ESCROWED SECURITIES
We are seeking discretionary relief from securities regulators in each of
the provinces of Canada to be exempt from applicable escrow rules, in accordance
with the policies of The Toronto Stock Exchange concerning the disposition of
shares held by certain persons related to a company engaging in an initial
public offering. In the event such relief is not obtained, several holders of
common shares will have to enter into an escrow agreement with us and a trustee.
Pursuant to this agreement, these shares will be placed in escrow with the
trustee by the shareholders. Of the escrowed shares deposited with the trustee,
one third will be released on each of the first, second and third anniversaries
of the date on which receipt for this prospectus is issued, or earlier with the
consent of The Toronto Stock Exchange.
REGISTRATION RIGHTS
For a description of the registration rights held by the holders of our
outstanding common shares, see "Certain Transactions."
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INCOME TAX CONSEQUENCES
In this section we summarize certain of the U.S. and Canadian federal income
tax considerations that may be relevant to purchasers of common shares in this
offering who:
- are U.S. persons within the meaning of the U.S. Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), including a purchaser who,
or that, is a citizen or resident of the U.S., a corporation or
partnership created or organized under the laws of the U.S. or any
political subdivision thereof or therein, an estate, the income of which
is subject to U.S. federal income tax regardless of the source, or a trust
if a court within the U.S. is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust;
- for purposes of the Income Tax Act (Canada) (the "Income Tax Act") and the
Canada-U.S. Income Tax Convention (1980) (the "Convention"), are resident
in the U.S. and are not nor are deemed to be resident in Canada;
- hold our common shares as capital assets for purposes of the Internal
Revenue Code and capital property for purposes of the Income Tax Act; and
- deal at arm's length with us for purposes of the Income Tax Act and the
Internal Revenue Code.
For purposes of this discussion, we will refer to beneficial owners of
common shares who satisfy the above conditions as "Unconnected U.S.
Shareholders." Such persons do not include, and this summary does not apply to,
persons who are "financial institutions" as defined in Section 142.2 of the
Income Tax Act and non-resident insurers that carry on business in Canada and
elsewhere.
We will assume, for purposes of this discussion, that you are an Unconnected
U.S. Shareholder. The tax consequences to a purchaser of common shares who is
not an Unconnected U.S. Shareholder may differ substantially from the tax
consequences discussed in this section. This discussion does not purport to deal
with all aspects of U.S. or Canadian federal income taxation that may be
relevant to particular Unconnected U.S. Shareholders or to certain classes of
Unconnected U.S. Shareholders who are subject to special treatment under the
U.S. or Canadian federal income tax laws, including, but not limited to,
Unconnected U.S. Shareholders who own, actually or constructively, 10% or more
of the total combined voting power of all classes of our shares, financial
institutions, dealers in securities, banks, insurance companies, tax-exempt
organizations, broker-dealers, individual retirement and other tax-deferred
accounts, U.S. persons whose functional currency (as defined in Section 985 of
the Internal Revenue Code) is not the U.S. dollar, and Unconnected U.S.
Shareholders holding common shares as part of a "straddle", "hedge" or
"conversion transaction".
This discussion is based upon:
- the Income Tax Act and regulations under the Income Tax Act;
- the Internal Revenue Code and existing and proposed regulations under the
Internal Revenue Code;
- the Convention;
- the current administrative policies and practices published by Revenue
Canada;
- all specific proposals to amend the Income Tax Act and the regulations
under the Income Tax Act that have been publicly announced by the Minister
of Finance (Canada) prior to the date of this prospectus;
- the administrative rulings, practice and policies of the U.S. Internal
Revenue Service (the "IRS"); and
- applicable U.S. and Canadian judicial decisions,
all as of the date hereof and all of which are subject to change (possibly on a
retroactive basis) and differing interpretation. We do not discuss the potential
effects of any proposed legislation in the U.S. and do not take into account the
tax laws of the various provinces or territories of Canada or the tax laws of
the various state and local jurisdictions of the U.S. or foreign jurisdictions.
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THIS DISCUSSION IS MERELY A GENERAL DESCRIPTION OF THE U.S. AND CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS MATERIAL TO A PURCHASE OF COMMON SHARES AND IT
IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO ANY
PERSON PURCHASING COMMON SHARES. THIS DISCUSSION DOES NOT DEAL WITH ALL POSSIBLE
TAX CONSEQUENCES RELATING TO AN INVESTMENT IN OUR COMMON SHARES. WE HAVE NOT
TAKEN INTO ACCOUNT YOUR PARTICULAR CIRCUMSTANCES AND DO NOT ADDRESS ALL
CONSEQUENCES TO YOU UNDER PROVISIONS OF U.S. OR CANADIAN INCOME TAX LAW.
THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX
CONSEQUENCES TO YOU OF PURCHASING, OWNING AND DISPOSING OF COMMON SHARES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND ANY CHANGES IN APPLICABLE LAWS.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
You generally will be required to include the U.S. dollar value of any
dividend distribution which you receive on the common shares in ordinary income
to the extent of our current and accumulated earnings and profits, as determined
under U.S. federal income tax principles. The U.S. dollar value of any
distribution received in Canadian dollars will be determined based on the spot
exchange rate for the date of receipt. The amount of the distribution required
to be included in gross income will be determined without reduction for Canadian
withholding tax. Therefore, in the event that the distribution is subject to
Canadian withholding tax, you generally will be required to report gross income
in an amount greater than the cash received. To the extent any dividend
distribution paid by us exceeds our current and accumulated earnings and
profits, your pro rata share of the excess amount will be treated first as a
return of capital up to your adjusted tax basis in our common shares (with a
corresponding reduction in basis), and then as a gain from the sale or exchange
of the common shares. Unconnected U.S. Shareholders should consult their tax
advisors regarding the tax treatment of foreign currency gain or loss, if any,
on Canadian dollars received. Dividends paid by us on our common shares
generally will not be eligible for the "dividends received" deduction.
Subject to certain conditions and limitations, you may be entitled to claim
a credit for U.S. federal income tax purposes in an amount equal to the U.S.
dollar value of any Canadian taxes withheld on any distributions that we make.
Alternatively, you may in some circumstances claim a deduction for the amount of
Canadian tax withheld in a taxable year, but only if you do not elect to claim a
foreign tax credit in respect of any foreign taxes paid by you in that year. In
general, the amount of allowable foreign tax credits in any year cannot exceed
your regular U.S. federal income tax liability for the year attributable to
certain foreign source income. Because distributions in excess of our current
and accumulated earnings and profits generally will not give rise to foreign
source income, you may be unable to claim a foreign tax credit in respect of
Canadian withholding tax imposed on the excess amount unless, subject to
applicable limitations, you have other foreign source income. However,
limitations on the use of foreign tax credits generally will not apply to an
electing individual Unconnected U.S. Shareholder whose creditable foreign taxes
during a tax year do not exceed $300 ($600 for joint filers) if such
individual's gross income for the tax year from non-U.S. sources consists solely
of certain items of "passive income" reported on a "payee statement" furnished
to the Unconnected U.S. Shareholder. In addition, an Unconnected U.S.
Shareholder will be denied a foreign tax credit with respect to taxes withheld
from dividends received on the common shares to the extent such Unconnected U.S.
Shareholder has not held the common shares for a minimum period or to the extent
such Unconnected U.S. Shareholder is under an obligation to make certain related
payments with respect to substantially similar or related property. The rules
relating to foreign tax credits are extremely complex and the availability of a
foreign tax credit depends on numerous factors. You should consult your own tax
advisor concerning the application of the U.S. foreign tax credit rules to your
particular situation.
You generally will recognize gain or loss on the sale, exchange or other
disposition of your common shares in an amount equal to the difference, if any,
between the amount realized on the sale, exchange or disposition and your
adjusted tax basis in the common shares. Any gain or loss you recognize upon the
sale, exchange or disposition of common shares held as capital assets generally
will be long-term or short-term capital gain or loss, depending on whether the
shares have been held by you
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<PAGE>
for more than one year. Gain or loss resulting from a sale, exchange or
disposition of the common shares generally will be U.S. source for U.S. foreign
tax credit purposes unless it is attributable to an office or other fixed place
of business outside the U.S. and other conditions are met.
Dividend payments with respect to the common shares and proceeds from the
sale, exchange or disposition of common shares may be subject to information
reporting to the IRS and possible U.S. backup withholding tax at a rate of 31%.
Backup withholding will not apply, however, to an Unconnected U.S. Shareholder
who furnishes a correct taxpayer identification number and makes any other
required certification or who is otherwise exempt from backup withholding.
Generally, an Unconnected U.S. Shareholder will provide such certification on
IRS Form W-9. Amounts withheld under the backup withholding rules may be
credited against a holder's tax liability, and a holder may obtain a refund of
any excess amounts withheld under the backup withholding rules by timely filing
the appropriate form for refund with the IRS.
PASSIVE FOREIGN INVESTMENT COMPANIES
The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. If we are a passive
foreign investment company for any taxable year in which you own our common
shares, the U.S. federal income tax consequences to you of owning and disposing
of your common shares may differ from those described above. We will be
classified as a passive foreign investment company for any taxable year if
either:
- 75% or more of our gross income is "passive income," which generally
includes interest, dividends, some types of rents and royalties and gains
from the sale or exchange of assets that produce passive income; or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income" is 50% or more.
In the event that we are a passive foreign investment company, distributions
by us which constitute "excess distributions," as defined in Section 1291 of the
Internal Revenue Code, and gains from the disposition of our common shares are
subject to special rules, pursuant to which an Unconnected U.S. Shareholder
generally must allocate the gain or excess distribution ratably to each day in
such holder's holding period for the common shares. The portion of the gain or
excess distribution allocated to the taxable year in which the gain was
recognized or the excess distribution was received and any taxable year during
which we were not a passive foreign investment company would be taxed as
ordinary income for the current year. The portion of the gain or excess
distribution allocated to each of the other taxable years would be subject to
tax at the maximum ordinary income rate in effect for such taxable year and an
interest charge would be imposed on the resulting tax liability determined as if
that liability had been due with respect to that prior year. In general, an
excess distribution is that portion of the total distributions, including a
return of capital, received by an Unconnected U.S. Shareholder in a taxable year
in excess of 125% of the average annual distributions received by the
Unconnected U.S. Shareholder in the three immediately preceding taxable years,
or the Unconnected U.S. Shareholder's holding period, if shorter. The tax and
interest charge on amounts allocated to the taxable years during which we are a
passive foreign investment company, other than the taxable year in which the
gain was recognized or excess distribution was received, would be includible in
the holder's U.S. federal income tax liability for the current taxable year.
This portion of your tax liability could not be offset by net operating losses,
and gains (but not losses) realized on the sale of the common shares could not
be treated as capital in nature, notwithstanding that the common shares were
held as capital assets. However, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295 of
the Internal Revenue Code, and if other requirements are satisfied, the above
described rules generally will not apply. Instead, the Unconnected U.S.
Shareholder would include annually in his gross income his pro rata share of our
ordinary earnings and net capital gain, regardless of whether such income or
gain was actually distributed. Tax on the income resulting from
61
<PAGE>
the qualified electing fund election, however, may be deferred, subject to an
interest charge imposed on such tax when due.
In addition, subject to specific limitations, Unconnected U.S. Shareholders
owning actually or constructively marketable shares in a passive foreign
investment company may in certain circumstances, make an election under
section 1296 of the Internal Revenue Code to mark that stock to market annually,
rather than being subject to the above-described rules. Amounts included in or
deducted from income under this mark to market election and actual gains and
losses realized upon disposition, subject to specific limitations, will be
treated as ordinary gains or losses.
An Unconnected U.S. Shareholder who beneficially owns shares of a passive
foreign investment company must file an annual return with the IRS.
Based upon the nature of our revenue and our anticipated corporate
structure, we may be treated as a passive foreign investment company.
Application of the passive foreign investment company income test to our
business is uncertain, and we have not determined whether we are a passive
foreign investment company. Moreover, our passive foreign investment company
status must be determined annually based on tests which are factual in nature,
and we have not determined whether we will become, or are likely to become, a
passive foreign investment company in the future. Neither we nor our advisors
have the duty or will undertake, to inform you of a determination that we are or
have become a passive foreign investment company, and we do not currently intend
to take actions necessary to permit you to make a "qualified electing fund
election" in the event we are determined to be a passive foreign investment
company. You are urged to consult your own tax advisor with respect to the
potential consequences to you if at any time we qualify as a passive foreign
investment company, including the advisability of making a mark to market
election if such election is available.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material anticipated Canadian federal
income tax considerations relevant to your purchase of common shares. This
section will only apply if you do not use or hold and are not deemed to use or
hold the common shares in, or in the course of, carrying on a business in Canada
for the purposes of the Income Tax Act.
Under the Income Tax Act, as an Unconnected U.S. Shareholder, you will
generally be exempt from Canadian tax on a capital gain realized on an actual or
deemed disposition of the common shares unless you, persons with whom you did
not deal at arm's length for the purposes of the Income Tax Act, or you and such
persons owned or had interests in or rights to acquire 25% or more of our issued
common shares of any class of the capital stock of our company at any time
during the five year period immediately preceding the disposition or deemed
disposition. Where a capital gain realized on a disposition or deemed
disposition of our common shares is subject to tax under the Income Tax Act, the
Convention will exempt the capital gain from Canadian tax if, on the disposition
of our shares, the value of our common shares is not derived principally from
real property situated in Canada. This relief under the Convention may not be
available if you had a permanent establishment or fixed base available in Canada
during the 12 months immediately preceding the disposition of the shares.
Dividends paid, credited or deemed to have been paid or credited on the
shares to Unconnected U.S. Shareholders will generally be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act. Under the Convention,
the rate of withholding tax generally applicable to Unconnected U.S.
Shareholders who beneficially own the dividends is reduced to 15%. In the case
of Unconnected U.S. Shareholders that are companies that beneficially own at
least 10% of our voting shares, the rate of withholding tax on dividends is
reduced to 5%.
Canada does not currently impose any estate taxes or succession duties,
however, if you die, there is generally a deemed disposition of the common
shares held at that time for proceeds of disposition equal to the fair market
value of the shares immediately before your death. Capital gains realized on the
deemed disposition, if any, will generally have the income tax consequences
described above.
62
<PAGE>
UNDERWRITING
Credit Suisse First Boston Corporation is acting as representative for the
underwriters named below. Each of the U.S. and Canadian underwriters has agreed
to purchase the number of common shares set forth below opposite its name. Their
obligations are contained in a U.S. underwriting agreement and a Canadian
underwriting agreement, each dated , 2000.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- ----------------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
Thomas Weisel Partners LLC..................................
---------
Subtotal................................................
---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CANADIAN UNDERWRITERS SHARES
- --------------------- ---------
<S> <C>
Nesbitt Burns Inc...........................................
RBC Dominion Securities Inc.................................
Credit Suisse First Boston Securities Canada Inc............
---------
Subtotal................................................
---------
Total................................................. 6,000,000
=========
</TABLE>
Each of the U.S. offering and the Canadian offering is conditional upon the
closing of the other.
The underwriting agreements provide that the underwriters are obligated to
purchase all of the common shares in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreements also provide that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offerings of common shares may be terminated. The obligations of the
underwriters under each underwriting agreement may be terminated at their
discretion on the basis of their assessment of the state of the financial
markets and also upon the occurrence of certain stated events.
We have granted to the underwriters a 30-day option exercisable by the
representative to purchase on a pro rata basis up to 900,000 additional common
shares from us at the initial public offering price less the underwriting
discounts and commissions. The option may be exercised only to cover any
over-allotments of common shares.
The U.S. underwriters and the Canadian underwriters are entering into an
inter-syndicate agreement providing for, among other things, the coordination of
their activities. Pursuant to the inter-syndicate agreement, sales may be made
between the U.S. underwriters and the Canadian underwriters at a price per
common share equal to the initial public offering price less an amount not
greater than the per common share amount of the selling concession or
commissions to dealers applicable to such shares. Pursuant to the
inter-syndicate agreement, each U.S. underwriter will agree to not offer or
sell, directly or indirectly, any common shares or distribute any prospectus
relating to the offering within Canada, and each Canadian underwriter will agree
to offer or sell, directly or indirectly, common shares or distribute any
prospectus relating to the offering, only in Canada.
The underwriters will offer our common shares initially at the public
offering price on the cover page of this prospectus, and to selling group
members at that price less a concession of $ per common share. The
underwriters and selling group members may allow a discount of
$ per common share on sales to other broker/dealers. After the
initial public offering, the public offering price, concession and discount may
only be changed by the representative.
63
<PAGE>
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us.... $ $ $
Expenses payable by us..................................
</TABLE>
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to common shares for our employees,
directors and certain other persons associated with us who have expressed an
interest in purchasing common shares in the offering. The number of shares
available for sale to the general public in the offering will be reduced to the
extent that these persons purchase the reserved shares. Any reserved shares
which are not purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
The underwriters have informed us that they do not expect discretionary
sales to exceed 10% of the common shares being offered.
We and our executive officers, directors and current shareholders have
agreed that we will not, except under limited circumstances, offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission or the securities commission of
any province of Canada, a registration statement or prospectus relating to any
of our common shares or securities convertible into or exchangeable or
exercisable for any of our common shares, or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse First Boston Corporation, for a period of
180 days after the date of this prospectus. However, following the closing of
this offering, we will be permitted to file a registration statement relating to
the shares authorized for issuance under our stock option plans.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act and the securities legislation of each Canadian province, or
contribute to payments which the underwriters may be required to make in respect
of those liabilities.
We have applied for our common shares to be approved for quotation on The
Nasdaq National Market and for listing on The Toronto Stock Exchange under the
symbol "SVNX" and "SVN", respectively. This quotation or listing is subject to
our meeting the relevant quotation or listing standards.
Before this offering, there has been no public market for our common shares.
The initial public offering price is to be determined through negotiations
between us and the representative of the underwriters. The principal factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, include:
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;
- our current financial condition;
- the history of, and the prospects for, our company and the industry in
which we compete;
- the ability of our management;
- our past and present operations;
- the prospects for, and anticipated timing of, our future revenue;
- the present state of our development;
- the percentage interest being sold by us as compared to our valuation; and
64
<PAGE>
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
The representative, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and "passive" market making, in accordance with Regulation M under
the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common shares in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representative to reclaim a selling concession
from a syndicate member when the common shares originally sold by such
syndicate member are purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
- In "passive" market making, market makers in the common shares who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common shares until the
time, if any, at which a stabilizing bid is made.
In accordance with a policy statement of the Ontario Securities Commission,
the underwriters may not, throughout the period of distribution, bid for or
purchase common shares. Exceptions, however, exist where the bid or purchase is
not made to create the appearance of active trading in, or raising prices of,
the common shares. These exceptions include a bid or purchase permitted under
the by-laws and rules of The Toronto Stock Exchange relating to market
stabilization and passive market making activities and a bid or purchase made
for and on behalf of a customer where the order was not solicited during the
period of distribution. We have been advised that in connection with the
offering and pursuant to the first exception mentioned above, the underwriters
may over-allot or effect transactions which stabilize or maintain the market
price of the common shares at levels other than those which might otherwise
prevail on the open market.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common shares to be higher than it would
otherwise be in the absence of these transactions. The transactions may be
effected on The Nasdaq National Market and The Toronto Stock Exchange or
otherwise and, if commenced, may be discontinued at any time.
Thomas Weisel Partners LLC, one of the U.S. underwriters, was organized and
registered as a broker/dealer under the U.S. securities laws in December 1998.
Since December 1998, Thomas Weisel Partners LLC has been named as a lead or
co-manager on 93 filed public offerings of equity securities, of which 74 have
been completed, and has acted as a syndicate member in an additional 51 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with us
pursuant to the U.S. underwriting agreement entered into in connection with this
offering.
The common shares are being offered by the several underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of legal matters by counsel for the underwriters and other conditions. The
underwriters reserve the right to withdraw, cancel or modify these offers and to
reject orders in whole or in part.
The common shares will be ready for delivery in Toronto, Ontario on or about
, 2000.
65
<PAGE>
LEGAL MATTERS
Goodman Phillips & Vineberg, Toronto, will pass upon the legality of the
common shares offered by this prospectus. Morrison & Foerster LLP, New York,
New York, is acting as our U.S. legal counsel with respect to the offering.
Shearman & Sterling and Osler, Hoskin & Harcourt LLP are acting as U.S. and
Canadian counsel, respectively, to the underwriters.
EXPERTS
Our consolidated balance sheets as of December 31, 1997 and 1998 and
September 30, 1999 and our consolidated statements of operations, shareholders'
equity and cash flows for the period from July 28, 1997 (date of inception) to
December 31, 1997, the year ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 included in this prospectus have been audited by
KPMG LLP, Independent Auditors, and have been so included in reliance upon the
reports of that firm given upon their authority as experts in accounting and
auditing. KPMG LLP's address is 4120 Yonge Street, Suite 500, Toronto, Ontario
M2P 2B8.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 covering the common shares being sold in this offering. We
have not included in this prospectus all of the information contained in the
registration statement, and you should refer to the registration statement and
its exhibits for further information.
Any statement regarding any of the contracts or other documents referred to
in this prospectus is not necessarily complete. If the contract or document is
filed as an exhibit to the registration statement, the contract or document is
deemed to modify the description contained in this prospectus. You must review
the exhibits themselves for a complete description of the contract or document.
You may review a copy of the registration statement, including exhibits and
schedules filed with it, at the Commission's public reference facilities in
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549, and
at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and at the Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
obtain copies of such materials from the Public Reference Section of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., 20549, at prescribed rates. You may call the Commission at
1-800-SEC-0330 for further information on the public reference rooms. These
Commission filings are also available to the public from commercial document
retrieval services.
Prior to this offering, we have not been required to file reports with the
Commission. Following consummation of the offering, we will be required to file
reports and other information with the Commission under the U.S. Securities
Exchange Act of 1934 and with the securities regulators in each of the provinces
of Canada under the applicable provincial securities legislation. You are
invited to read and copy any reports, statements or other information, other
than confidential filings, that we file with the Commission at its public
reference room. These materials can also be inspected on the Securities and
Exchange Commission's Website at http://www.sec.gov, and the Canadian System for
Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com).
We intend to file with the Commission annual reports on Form 20-F. In
addition, in order to comply with the rules of The Nasdaq Stock Market's
National Market, we intend to furnish to our shareholders an annual report and a
proxy statement prior to each of our annual meetings of shareholders. Our annual
reports will include consolidated financial statements prepared in accordance
with accounting principles generally accepted in Canada which, except as will be
disclosed therein, will conform in all material respects with accounting
principles generally accepted in the U.S. These annual financial statements will
be examined by our independent auditors. We also intend to make available
quarterly reports containing condensed unaudited financial information for each
of the first three quarters of each fiscal year, prepared in accordance with
accounting principles generally accepted in Canada.
66
<PAGE>
724 SOLUTIONS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of KPMG LLP, Independent Auditors.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Board of Directors of 724 Solutions Inc.
We have audited the consolidated balance sheets of 724 Solutions Inc. as at
December 31, 1997 and 1998 and September 30, 1999 and the consolidated
statements of operations, shareholders' equity and cash flows for the period
from July 28, 1997 (date of inception) to December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1998 and September 30, 1999 and the results of its operations and its
cash flows for the period from July 28, 1997 (date of inception) to
December 31, 1997, the year ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 in accordance with generally accepted accounting
principles in Canada.
Generally accepted accounting principles in Canada differ in some respects
from those applicable in the United States (note 11).
<TABLE>
<S> <C>
Toronto, Canada (Signed) KPMG LLP
October 29, 1999, except as to Note 12 Chartered Accountants
which is as of December 30, 1999
</TABLE>
F-2
<PAGE>
724 SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,299 $ 2,976 $28,044
Accounts receivable, net of allowance for doubtful
accounts of $0.......................................... 1 35 2,265
Prepaid expenses.......................................... -- 21 498
------ ------- -------
Total current assets.................................... 1,300 3,032 30,807
Property and equipment (note 3)............................. 21 860 1,637
------ ------- -------
Total assets................................................ $1,321 $ 3,892 $32,444
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 23 $ 236 $ 398
Accrued liabilities....................................... 10 463 1,457
Deferred revenue.......................................... -- 420 3,855
------ ------- -------
Total current liabilities............................... 33 1,119 5,710
Shareholders' equity (note 4):
Unlimited number of common shares authorized;
4,000,000 common shares issued and outstanding at
December 31, 1997; 11,428,570 common shares at
December 31, 1998 and 19,320,360 common shares issued
and outstanding at September 30, 1999................... 1,443 7,752 37,907
Deferred stock-based compensation......................... -- (233) (150)
Accumulated deficit....................................... (155) (4,746) (11,023)
------ ------- -------
Total shareholders' equity................................ 1,288 2,773 26,734
------ ------- -------
Total liabilities and shareholders' equity.................. $1,321 $ 3,892 $32,444
====== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
724 SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999
-------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Product.......................................... $ -- $ 1,678 $1,049 $ 1,314
Services......................................... -- 208 208 788
------ ------- ------ -------
Total revenue.................................. -- 1,886 1,257 2,102
Cost of revenue.................................... -- 61 61 819
------ ------- ------ -------
Gross profit....................................... -- 1,825 1,196 1,283
Operating expenses:
Research and development......................... 44 2,096 980 4,468
Sales and marketing.............................. 39 412 209 1,134
General and administrative....................... 82 547 255 2,175
Stock-based compensation (note 4)................ -- 3,468 154 124
------ ------- ------ -------
Total operating expenses....................... 165 6,523 1,598 7,901
------ ------- ------ -------
Income (loss) from operations.................. (165) (4,698) (402) (6,618)
Interest income.................................... 10 107 69 341
------ ------- ------ -------
Income (loss) before income taxes.............. (155) (4,591) (333) (6,277)
Income taxes (note 5).............................. -- -- -- --
------ ------- ------ -------
Net income (loss).............................. $ (155) $(4,591) $ (333) $(6,277)
====== ======= ====== =======
Basic and diluted net income (loss) per share...... $(0.06) $ (0.79) $(0.07) $ (0.47)
====== ======= ====== =======
Shares used in computing basic and diluted net
income (loss) per share (in thousands)........... 2,752 5,784 4,564 13,301
====== ======= ====== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
724 SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES DEFERRED TOTAL
--------------------- STOCK-BASED ACCUMULATED SHAREHOLDERS'
NUMBER AMOUNT COMPENSATION DEFICIT EQUITY
---------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, at July 28, 1997
(inception)....................... 200 $ 1 $ -- $ -- $ 1
Net income (loss)................... -- -- -- (155) (155)
Issuance of common shares........... 3,999,800 1,442 -- -- 1,442
---------- ------- ----- -------- -------
Balances, December 31, 1997......... 4,000,000 1,443 -- (155) 1,288
Net income (loss)................... -- -- -- (4,591) (4,591)
Deferred stock-based compensation... -- 414 (414) -- --
Amortization of deferred stock-based
compensation...................... -- -- 181 -- 181
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) (4,746) 2,773
Net income (loss)................... -- -- -- (6,277) (6,277)
Deferred stock-based compensation... -- 41 (41) -- --
Amortization of deferred stock-based
compensation...................... -- -- 124 -- 124
Issuance of common shares........... 7,891,790 30,114 -- -- 30,114
---------- ------- ----- -------- -------
Balances, September 30, 1999
(note 12)......................... 19,320,360 $37,907 $(150) $(11,023) $26,734
========== ======= ===== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
724 SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1997 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
1997 1998 1998 1999
-------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (155) $(4,591) $ (333) $(6,277)
Depreciation................................... -- 88 34 445
Stock-based compensation....................... -- 3,468 154 124
Change in operating assets and liabilities:
Accounts receivable.......................... (1) (34) -- (2,230)
Prepaid expenses............................. -- (21) (41) (477)
Accounts payable............................. 23 213 112 162
Accrued liabilities.......................... 10 453 200 994
Deferred revenue............................. -- 420 827 3,435
------ ------- ------ -------
Net cash from (used in) operating activities....... (123) (4) 953 (3,824)
------ ------- ------ -------
Cash flows from investing activities:
Purchases of property and equipment............ (21) (927) (361) (1,222)
------ ------- ------ -------
Cash used in investing activities.................. (21) (927) (361) (1,222)
------ ------- ------ -------
Cash flows from financing activities:
Issuance of common shares...................... 1,443 2,608 698 30,114
------ ------- ------ -------
Cash provided by financing activities.............. 1,443 2,608 698 30,114
------ ------- ------ -------
Net increase in cash and cash equivalents.......... 1,299 1,677 1,290 25,068
Cash and cash equivalents at beginning of period... -- 1,299 1,299 2,976
------ ------- ------ -------
Cash and cash equivalents at end of period......... $1,299 $ 2,976 $2,589 $28,044
====== ======= ====== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JULY 28, 1997 (INCEPTION) TO DECEMBER 31, 1997,
YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
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
on-line 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 accounting principles
generally accepted in Canada which, except as disclosed in note 11, conform, in
all material respects, with accounting principles generally accepted in the U.S.
CONSOLIDATION
These consolidated financial statements include the accounts of the Company
and its wholly owned inactive U.S. subsidiary, 724 Solutions Corp., which was
incorporated on September 15, 1999.
CASH AND CASH EQUIVALENTS
Cash consists of deposits with major financial institutions. Cash
equivalents consists of high grade commercial paper with an original maturity of
three months or less at the date of acquisition. As at September 30, 1999, cash
equivalents accounted for approximately 89% of the cash and cash equivalents
balance and consisted of investments in thirty day commercial paper.
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 value 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.
REVENUE RECOGNITION
The Company's revenue is derived from (i) the licensing of a product and
(ii) the provision of related services, including installation, integration,
training and maintenance and support. Product revenue is 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 is 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 agreements, which are typically twelve
months. Product and services revenue that have been prepaid but do not yet
qualify for recognition as revenue under the Company's revenue recognition
policy is reflected as deferred revenue on the Company's balance sheet.
F-7
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value method to account for its stock-based
employee compensation plan. As such, deferred stock-based compensation is
recorded if on the date of grant the current fair value of each 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.
PROPERTY AND EQUIPMENT
Property and equipment 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>
<CAPTION>
<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 property and
equipment 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 writedown is charged to the statements of operations.
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
F-8
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
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 period. Actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Computer equipment...................................... $11 $356 $ 966
Computer software....................................... -- 200 400
Office furniture and equipment.......................... 10 172 223
Leasehold improvements.................................. -- 220 581
------ ------ ------
21 948 2,170
Less accumulated depreciation........................... -- 88 533
------ ------ ------
$21 $860 $1,637
====== ====== ======
</TABLE>
F-9
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. 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 1,000,000 common
shares for gross proceeds of Cdn.$1,000,000 and provided Bank of Montreal with
an option to subscribe for 2,428,570 additional common shares for
Cdn.$1,000,000, exercisable upon Bank of Montreal'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 Bank of
Montreal's extension of the technology license agreement, Bank of Montreal
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 at
a price of $3.69 per share for gross proceeds of $2,000,000 and Bank of America
committed to subscribe for 541,790 additional common shares for $2,000,000. Bank
of America subscribed for the 541,790 additional common shares in October 1999.
In July 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 upon the satisfaction of certain conditions, including the
receipt of applicable regulatory approvals. The option was exercised in
October 1999 (note 12).
In August 1999, the Company granted Bank of America 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 (note 12).
In August 1999, the Company issued 6,400,000 common shares to Sonera Ltd.
for a price of $3.83 per share for gross proceeds of $24,480,000.
(b) Stock option plan
The Company's stock option plan (the "Plan") provides for the granting of
options to employees, officers, directors, advisors and consultants of the
Company and its affiliates. The maximum number of common shares which may be set
aside for issuance under the Plan is 2,500,000 shares, provided that the Board
of Directors of the Company has the right, from time to time, to increase such
number subject to the approval of the stockholders of the Company when required
by law or regulatory authority. Generally, options issued under the Plan vest
annually over a three year period. The common shares issuable upon exercise of
any option that is cancelled or terminated prior to its exercise will become
available again for grant under the Plan. In accordance with the Plan, the
exercise price of options is determined based on the fair market value per share
on the grant date.
Options granted under the Plan may be exercised during a period not
exceeding ten years from the date of grant, subject to earlier termination if
the optionee ceases to be an employee, officer or
F-10
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY -- (CONTINUED)
director of the Company or any of its subsidiaries, as applicable. Options
issued under the Plan are non-transferable.
In October 1999, the Company adopted a U.S. stock option plan (the "U.S.
Plan") that provides for the grant of options and restricted shares to
employees, officers, directors and consultants of the Company and its
subsidiaries. As this plan was adopted subsequent to September 30, 1999, no
options under the U.S. Plan were outstanding as of September 30, 1999.
A summary of the status of the Company's options under the Plan as at
September 30, 1999, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING NUMBER OF
NUMBER OF CONTRACTUAL OPTIONS
EXERCISE PRICES OPTIONS LIFE (YEARS) EXERCISABLE
- --------------- --------- ------------ -----------
<S> <C> <C> <C>
$0.68................................................ 1,577,334 8.5 995,996
$3.41................................................ 473,800 9.3 39,500
$7.50................................................ 160,460 9.9 62,000
--------- ---------
2,211,594 1,097,496
========= =========
</TABLE>
The following table summarizes the continuity of options issued under the
Plan:
<TABLE>
<CAPTION>
1997 1998 1999
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period.................. -- $ -- 400,000 $0.35 1,865,000 $0.49
Granted................... 400,000 0.35 1,465,000 $0.54 404,460 2.52
Cancelled................. -- -- -- -- (57,866) 0.51
------- --------- ---------
Outstanding, end of
period.................. 400,000 $0.35 1,865,000 $0.49 2,211,594 $0.88
======= ===== ========= ===== ========= =====
Options exerciseable, end
of period............... 200,000 $0.35 625,166 $0.34 1,097,496 $0.58
======= ===== ========= ===== ========= =====
</TABLE>
The Company recorded deferred stock-based compensation amounting to $414,000
for the year ended December 31, 1998 and $41,000 for the nine month period ended
September 30, 1999. Amortization of deferred stock-based compensation amounted
to $181,000 for the year ended December 31, 1998 and $154,000 and $124,000 for
the nine months ended September 30, 1998 and 1999, respectively.
F-11
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the statutory income tax rate to income (loss) before income taxes. The sources
and tax effects of the differences are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
JULY 28, 1997 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED -------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
------------------- ------------------- -------- --------
<S> <C> <C> <C> <C>
Basic rate applied to income (loss)
before provision for income
taxes............................ $(69) $(2,047) $ (148) $(2,799)
Adjustments resulting from:
Scientific research expenses not
deducted for tax............... -- 333 87 770
Stock-based compensation not
deducted for tax............... -- 1,546 68 55
Other............................ 45 168 (7) 91
---- ------- ------- -------
(24) -- -- (1,883)
Unrecognized benefit of net
operating losses carried
forward.......................... 24 -- -- 1,883
---- ------- ------- -------
Income taxes....................... $ -- $ -- $ -- $ --
==== ======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Research and development expenses deferred for income
tax purposes........................................ $ -- $ 244 $ 1,138
Net operating losses carried forward.................. 24 24 1,907
Other................................................. -- -- 90
------- ------- -------
Deferred tax asset.................................... 24 268 3,135
Less valuation allowance.............................. (24) (268) (3,135)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred 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 deferred tax assets the Company will need to generate
future taxable income of approximately $7 million prior to the
F-12
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES -- (CONTINUED)
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.
6. LEASE COMMITMENTS
Future minimum lease payments under non-cancellable operating leases for
premises and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
<S> <C>
2000........................................................ $ 609
2001........................................................ 1,051
2002........................................................ 1,045
2003........................................................ 1,029
2004........................................................ 949
2005 and thereafter......................................... 587
</TABLE>
Rent expense for the period from July 28, 1997 (inception) to December 31,
1997, the year ended December 31, 1998 and the nine months ended September 30,
1998 and 1999 was $6,000, $107,000, $17,000 and $307,000, respectively. The
Company is also responsible for certain common area costs at its leased
premises.
7. 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 September 30, 1999
all assets related to the Company's operations were located in Canada. Revenue
is attributable to geographic location based on the location of the customer, as
follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM ENDED
JULY 28, 1997 YEAR ENDED SEPTEMBER 30,
(INCEPTION) TO DECEMBER 31, -------------------
DECEMBER 31, 1997 1998 1998 1999
------------------- ------------- -------- --------
<S> <C> <C> <C> <C>
Revenue by geographic locations:
U.S................................... $ -- $ -- $ -- $ 754
Canada................................ -- 1,866 1,257 1,348
------ ------ ------ ------
$ -- $1,866 $1,257 $2,102
====== ====== ====== ======
</TABLE>
For the year ended December 31, 1998, one customer accounted for 100% of
revenue. For the period from January 1, 1999 to September 30, 1999, two
customers have accounted for 100% of revenue. At September 30, 1999, two
customers accounted for 100% of the accounts receivable balance.
F-13
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
(a) On April 30, 1998, the Company entered into a share subscription
agreement and a technology license agreement with Bank of Montreal ("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 the 2,428,570 shares for
Cdn.$1,000,000. 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 September 30, 1999, BMO owned approximately 17.7% of the
Company's outstanding common shares (11.6% on a fully-diluted basis).
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 world-wide 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 September 30, 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 September 30,
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 in accordance
with the terms of the agreement or recognized into income when the commitment to
such refund has expired.
(b) On May 27, 1999, the Company entered into a subscription agreement and a
technology licensing agreement with Bank of America ("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. Bank of America subscribed for the 541,790
additional common shares in October 1999 as a result of the Company attracting
additional equity investors at that time.
The technology license agreement provides for a license fee to be paid by BA
to the Company over a twenty-month period commencing on May 27, 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.
F-14
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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. The following table sets out the
balances and transactions with the licensees relating to these agreements (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
RELATED PARTY BALANCES:
Accounts receivable................. $ -- $ 34 $ 750
Deferred revenue.................... -- 420 2,855
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
PERIOD FROM ENDED
JULY 28, 1997 SEPTEMBER 30,
(INCEPTION) TO YEAR ENDED -------------------
DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
------------------- ------------------- -------- --------
<S> <C> <C> <C> <C>
RELATED PARTY TRANSACTIONS:
Revenue.............................. $ -- $1,886 $1,257 $1,348
</TABLE>
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
$28,000, together with options, granted under the option plan, to purchase
48,000 common shares of the Company at an exercise price of $3.75, vesting at a
rate of 2,000 shares per month.
9. EARNINGS 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
periods presented amounted to 10,319,804.
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-15
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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) Recent Accounting Pronouncements:
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
period from July 28, 1997 (inception) to December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999,
equalled the net income (loss) for the period.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
No. 131). SFAS No. 131 was adopted by the Company in 1997. SFAS No. 131
establishes standards for disclosures about operating segments, product and
services, geographic areas and major customers. 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.
In March 1998, the American Institute of Certified Public Accountants issued
SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP No. 98-1). SOP No. 98-1 requires entities to
capitalize certain costs related to internal-use software once certain criteria
have been met. For U.S. GAAP purposes, SOP 98-1 was adopted by the Company in
1998. The adoption of SOP No. 98-1 did not have a material impact on the
Company's financial position or results of operations.
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.
(b) 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 pro 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,
F-16
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CANADIAN AND U.S. ACCOUNTING POLICY DIFFERENCES -- (CONTINUED)
accordingly, a summary of the pro forma impact on the statement of operations is
presented in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
JULY 28, 1997
(INCEPTION) TO YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net income (loss)........................... $ (155) $(4,591) $(6,277)
Compensation expense related to the fair
value of stock options.................... (4) (23) (48)
------- ------- -------
Pro forma net income (loss)................. $ (159) $(4,614) $(6,325)
======= ======= =======
Pro forma net income (loss) per share....... $ (0.06) $ (0.80) $ (0.48)
======= ======= =======
</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 assumption:
weighted average risk free interest rate of 4.75% for the period from July 28,
1997 (inception) to December 31, 1997; 5.1% for the year ended December 31,
1998; and 4.9% for the nine months ended September 30, 1999.
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 was $0.07 and $0.13 for the period from July 28,
1997 (inception) to December 31, 1997 and for the year ended December 31, 1998,
respectively. The weighted-average grant-date fair value of options issued in
the nine months period ended September 30, 1999 was $0.38.
12. SUBSEQUENT EVENTS
The Company's Board of Directors has authorized the initial filing of a
prospectus with regulatory authorities in Canada and the United States that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO").
The Company has filed articles of amendment to split all of the outstanding
and reserved common shares on a basis of two for one, effective December 30,
1999. The Company's share capital and earnings per share have been restated to
give effect to this share split.
In October 1999, in connection with the fulfillment of subscription
obligations and the exercise of common share purchase options, the Company
issued: (i) 5,450,000 common shares to Citicorp Strategic Technology Corporation
for cash proceeds of $20,846,250; and (ii) 2,658,210 common shares to Bank of
America for cash proceeds of $10,243,456.
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. The private
placements will trigger a preemptive right to issue approximately 67,200 common
shares at a purchase price of $7.50 per share if the warrant is exercised.
In December 1999, the Company adopted a new stock option plan which will be
implemented upon completion of the Company's initial public offering. Options
granted under the existing plans will
F-17
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS -- (CONTINUED)
be unaffected by the adoption of the new plan. The new plan will provide for the
grant of options to all employees, officers, directors and consultants of the
Company and its affiliates worldwide. 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 from time to
time. The options granted under the new 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, 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 voting power. All options granted under this plan will become
fully vested and exercisable upon a change of control of the Company.
F-18
<PAGE>
[LOGO]
<PAGE>
[ALTERNATIVE COVER PAGE FOR CANADIAN PROSPECTUS]
This is a preliminary prospectus relating to these securities, a copy of which
has been filed with the securities commissions or other regulatory authority in
each of the provinces of Canada but which has not yet become final for the
purpose of a distribution or a distribution to the public. Information contained
herein is subject to completion or amendment. These securities may not be sold
to, nor may offers to buy be accepted from residents of such jurisdictions prior
to the time a receipt for the final prospectus is obtained from the appropriate
securities commission or other regulatory authority.
<PAGE>
AMENDED PRELIMINARY PROSPECTUS DATED JANUARY 12, 2000
THIS AMENDED PRELIMINARY PROSPECTUS CONSTITUTES A PUBLIC OFFERING OF THESE
SECURITIES ONLY IN THOSE JURISDICTIONS WHERE THEY MAY BE LAWFULLY OFFERED FOR
SALE AND THEREIN ONLY BY PERSONS PERMITTED TO SELL SUCH SECURITIES. NO
SECURITIES COMMISSION OR SIMILAR AUTHORITY IN CANADA OR THE UNITED STATES HAS IN
ANY WAY PASSED UPON THE MERITS OF THE SECURITIES OFFERED HEREUNDER AND ANY
REPRESENTATION TO THE CONTRARY IS AN OFFENCE.
THIS AMENDED PRELIMINARY PROSPECTUS HAS BEEN FILED UNDER PROCEDURES IN EACH OF
THE PROVINCES OF CANADA WHICH PERMIT CERTAIN INFORMATION WITH RESPECT TO THESE
SECURITIES TO BE DETERMINED AFTER THE PROSPECTUS HAS BECOME FINAL AND PERMIT THE
OMISSION FROM THIS AMENDED AND RESTATED PRELIMINARY PROSPECTUS OF SUCH
INFORMATION. SUCH PROCEDURES REQUIRE THE DELIVERY TO PURCHASERS OF A PROSPECTUS
OR A PROSPECTUS SUPPLEMENT CONTAINING THIS OMITTED INFORMATION WITHIN A
SPECIFIED PERIOD OF TIME AFTER AGREEING TO PURCHASE ANY OF THESE SECURITIES.
INITIAL PUBLIC OFFERING
[LOGO]
CDN. $ -
6,000,000 COMMON SHARES
This offering is an initial public offering (the "Offering") of 6,000,000 common
shares of 724 Solutions Inc. (the "Company"). The Company is offering
- common shares in the United States through a syndicate of
U.S. underwriters and - common shares in Canada through a syndicate of
Canadian underwriters. The common shares are being offered in Canada by Nesbitt
Burns Inc., RBC Dominion Securities Inc. and Credit Suisse First Boston
Securities Canada Inc. (the "Canadian Underwriters") and in the United States by
Credit Suisse First Boston Corporation, BancBoston Robertson Stephens Inc. and
Thomas Weisel Partners LLC (the "U.S. Underwriters" and, collectively with the
Canadian Underwriters, the "Underwriters"). This prospectus incorporates the
prospectus included in a Registration Statement on Form F-1 filed with the U.S.
Securities and Exchange Commission. The offering price of the common shares has
been determined by negotiation between the Company and the Underwriters.
THERE IS CURRENTLY NO MARKET THROUGH WHICH THE COMMON SHARES MAY BE SOLD. An
application has been made to list the common shares for trading on The Toronto
Stock Exchange under the symbol "SVN", subject to the Company meeting the
exchange's listing requirements. An application has been made for the quotation
of the common shares on The Nasdaq National Market under the symbol "SVNX",
subject to the Company meeting Nasdaq's quotation requirements.
After giving effect the Offering, the offering price of each common share would
exceed the net tangible book value per common share as of September 30, 1999 by
Cdn.$ - , representing a dilution factor of - % ( - % if the
Underwriters' over-allotment option is exercised in full). See "Dilution" and
"Risk Factors".
AN INVESTMENT IN THE COMMON SHARES IS SUBJECT TO A NUMBER OF RISK FACTORS WHICH
SHOULD BE CAREFULLY REVIEWED BY PROSPECTIVE PURCHASERS. SEE "RISK FACTORS".
UNLESS OTHERWISE STATED, ALL DOLLAR AMOUNTS HEREIN ARE STATED IN U.S. DOLLARS.
PRICE: CDN. $ - PER COMMON SHARE
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING NET PROCEEDS
PUBLIC COMMISSION TO THE COMPANY(1)
--------------- -------------- -----------------
<S> <C> <C> <C>
Per common share(2)...................................... Cdn. $ - Cdn. $ - Cdn. $ -
Total(3)................................................. Cdn. $ - Cdn. $ - Cdn. $ -
</TABLE>
(1) Before deducting expenses of the Offering payable by the Company estimated
at $ - .
(2) The common shares are being offered in Canada in Canadian dollars at the
approximate equivalent of the U.S. dollar offering price converted at an
exchange rate of Cdn. $ - equals U.S.$1.00 as of - , 2000. See
"Exchange Rates".
(3) The Company has granted an over-allotment option to the Underwriters
exercisable within 30 days from the completion of the Offering to purchase a
maximum of 900,000 additional common shares on the same terms as set forth
above to cover over-allotments, if any. If the over-allotment option is
exercised in full, the Price to Public, Underwriting Commission and Net
Proceeds to the Company will be Cdn.$ - , Cdn.$ - and Cdn.$ - ,
respectively.
The Canadian Underwriters, as principals, conditionally offer the common
shares, subject to prior sale, if, as and when issued and sold by the Company
and delivered to the Canadian Underwriters and accepted by them in accordance
with the conditions of the Canadian Underwriting Agreement described under
"Underwriting" and subject to the approval of certain legal matters on behalf of
the Company by Goodman Phillips & Vineberg, Toronto and Morrison & Foerster LLP,
and on behalf of the Underwriters by Osler, Hoskin & Harcourt LLP and
Shearman & Sterling.
Subscriptions shall be received subject to rejection or allotment in whole
or in part, and the right is reserved to close the subscription books at any
time without notice. It is expected that the closing of the Offering will take
place on - , 2000 or such other date which may be agreed upon, but not later
than - , 2000. Certificates evidencing the common shares will be available
for delivery at closing.
<PAGE>
[ALTERNATIVE TABLE OF CONTENTS FOR CANADIAN PROSPECTUS]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 19
GENERAL INFORMATION IN PROSPECTUS..... 19
USE OF PROCEEDS....................... 20
DIVIDEND POLICY....................... 20
EXCHANGE RATES........................ 20
CAPITALIZATION........................ 21
DILUTION.............................. 22
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 24
BUSINESS.............................. 32
MANAGEMENT............................ 45
CERTAIN TRANSACTIONS.................. 52
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRINCIPAL SHAREHOLDERS................ 55
DESCRIPTION OF SHARE CAPITAL.......... 56
SHARES ELIGIBLE FOR FUTURE SALE....... 57
INCOME TAX CONSEQUENCES............... 59
UNDERWRITING.......................... 63
LEGAL MATTERS......................... 66
EXPERTS............................... 66
WHERE YOU CAN FIND MORE INFORMATION... 66
ELIGIBILITY FOR INVESTMENT............ 67
MATERIAL CONTRACTS.................... 67
PROMOTERS............................. 68
PURCHASERS' STATUTORY RIGHTS.......... 68
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
CERTIFICATE OF THE COMPANY............ C-1
CERTIFICATE OF THE UNDERWRITERS....... C-2
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES IN THE U.S., WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS,
AND IS IN ADDITION TO THE DELIVERY OBLIGATIONS OF DEALERS SUBJECT TO CANADIAN
SECURITIES LAWS.
--------------
3
<PAGE>
[ALTERNATIVE PAGE F-2 FOR CANADIAN PROSPECTUS]
AUDITORS' REPORT
To the Board of Directors of 724 Solutions Inc.
We have audited the consolidated balance sheets of 724 Solutions Inc. as at
December 31, 1997 and 1998 and September 30, 1999 and the consolidated
statements of operations, shareholders' equity and cash flows for the period
from July 28, 1997 (date of inception) to December 31, 1997, the year ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1997 and 1998 and September 30, 1999 and the results of its operations and its
cash flows for the period from July 28, 1997 (date of inception) to
December 31, 1997, the year ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 in accordance with generally accepted accounting
principles in Canada.
Generally accepted accounting principles in Canada differ in some respects
from those applicable in the United States (note 11).
<TABLE>
<S> <C>
Toronto, Canada
October 29, 1999, except as to Note 12 Chartered Accountants
which is as of December 30, 1999
</TABLE>
F-2
<PAGE>
[ALTERNATIVE PAGE F-3 FOR CANADIAN PROSPECTUS]
724 SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $1,299 $ 2,976 $28,044
Accounts receivable, net of allowance for doubtful
accounts of $0.......................................... 1 35 2,265
Prepaid expenses.......................................... -- 21 498
------ ------- -------
Total current assets.................................... 1,300 3,032 30,807
Property and equipment (note 3)............................. 21 860 1,637
------ ------- -------
Total assets................................................ $1,321 $ 3,892 $32,444
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 23 $ 236 $ 398
Accrued liabilities....................................... 10 463 1,457
Deferred revenue.......................................... -- 420 3,855
------ ------- -------
Total current liabilities............................... 33 1,119 5,710
Shareholders' equity (note 4):
Unlimited number of common shares authorized;
4,000,000 common shares issued and outstanding at
December 31,
1997; 11,428,570 common shares at December 31, 1998 and
19,320,360 common shares issued and outstanding at
September 30,
1999.................................................... 1,443 7,752 37,907
Deferred stock-based compensation......................... -- (233) (150)
Accumulated deficit....................................... (155) (4,746) (11,023)
------ ------- -------
Total shareholders' equity................................ 1,288 2,773 26,734
------ ------- -------
Total liabilities and shareholders' equity.................. $1,321 $ 3,892 $32,444
====== ======= =======
</TABLE>
<TABLE>
<S> <C>
(Signed) GREGORY WOLFOND (Signed) CHRISTOPHER ERICKSON
Director Director
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
[ADDITIONAL PAGE 40 FOR CANADIAN PROSPECTUS]
INTELLECTUAL PROPERTY RIGHTS
We protect our proprietary technology through a combination of contractual
confidentiality provisions, trade secrets, and patent, copyright and trademark
laws. We have applied for patents and to have several of our trademarks
registered, including "724 Solutions", "724 Solutions & Design" and "E-Anywhere"
in Canada and "724 Solutions" and "724 Solutions & Design" in the U.S. To date,
none of these patents has been issued and none of these trademarks has been
registered. Despite the measures we have taken to protect our intellectual
property, we cannot assure you that third parties will not breach the
confidentiality provisions in our contracts or infringe or misappropriate our
copyrights, pending patents, trademarks and other proprietary rights. We may not
be able to secure patent or trademark registrations for all of our patent
applications or trademarks. We cannot assure you that third parties will not
independently discover or invent competing technologies or reverse engineer our
trade secrets, software or other technology. Moreover, the laws of some foreign
countries may not protect our proprietary rights to the same extent as do the
laws of the U.S. and Canada. Therefore, the measures we are taking to protect
our proprietary rights may not be adequate.
We also rely on technology and other intellectual property licensed to us by
third parties. For example, we have entered into a license agreement with
Certicom and Consensus for use of their encryption technology. We have also
entered into license agreements with third party content providers. In addition,
we use certain third party software that may not be available to us on
commercially reasonable terms or prices or at all in the future. Moreover, some
of our license agreements are non-exclusive, and therefore, our competitors may
have access to the very same technology licensed to us.
To date, we have not been notified that our product infringes on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to our existing or future products. Any claim of this kind,
whether or not it has merit, could result in costly litigation, divert
management's attention, cause delays in product installation, or cause us to
enter into royalty or licensing agreements on terms that may not be acceptable
to us.
EMPLOYEES
As of December 20, 1999, we had a total of 184 employees. None of our
employees is covered by any collective bargaining agreements. We believe that
our relations with our employees are good.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
FACILITIES
Our registered and head office is located in Toronto, Ontario in a
75,014 square foot facility under a lease which expires in 2005.
CORPORATE HISTORY
The Company was incorporated under the BUSINESS CORPORATIONS ACT (Ontario)
on July 28, 1997. Pursuant to Articles of Amalgamation dated July 7, 1999, the
Company amalgamated with 1344495 Ontario Limited, a wholly owned subsidiary, and
continued under the name 724 Solutions Inc. Pursuant to Articles of Amendment
dated December 30, 1999, the Company effected a two-for-one split of its common
shares.
44
<PAGE>
[ADDITIONAL PAGE FOR CANADIAN PROSPECTUS]
ELIGIBILITY FOR INVESTMENT
In the opinion of Goodman Phillips & Vineberg, Toronto, counsel to the
Company, and of Osler, Hoskin & Harcourt LLP, counsel to the Underwriters,
subject to compliance with the prudent investment standards and general
investment provisions and restrictions of the statutes referred to below (and,
where applicable the regulations thereunder) and, in certain cases, subject to
the satisfaction of additional requirements relating to investment policies,
standards, procedures and goals, the purchase of the common shares offered
hereby will not, at the date of issue, be precluded under the following
statutes:
INSURANCE COMPANIES ACT (Canada)
PENSION BENEFITS STANDARDS ACT, 1985 (Canada)
TRUST AND LOAN COMPANIES ACT (Canada)
FINANCIAL INSTITUTIONS ACT
(British Columbia)
LOAN AND TRUST CORPORATIONS ACT (Alberta)
THE INSURANCE ACT (Manitoba)
THE TRUSTEE ACT (Manitoba)
PENSION BENEFITS ACT (Ontario)
LOAN AND TRUST CORPORATIONS ACT (Ontario)
AN ACT RESPECTING INSURANCE (Quebec) (for
insurers other than mutual associates and insurance funds)
AN ACT RESPECTING TRUST COMPANIES AND SAVING COMPANIES (Quebec) (for
saving companies investing their own funds, and by trust companies
investing their own funds and deposits received by them)
SUPPLEMENTAL PENSION PLANS ACT (Quebec)
In the opinion of such counsel, the common shares, if, as and when listed on
a prescribed stock exchange (which presently includes The Toronto Stock
Exchange), will be qualified investments for a trust governed by a Registered
Retirement Savings Plan, a Registered Retirement Income Fund or a Deferred
Profit Sharing Plan under the Income Tax Act and the regulations thereunder, and
under certain proposed amendments to the Income Tax Act, for a trust governed by
a Registered Education Savings Plan. Also in the opinion of such counsel, at the
date of their issue, the common shares will not be "foreign property" for the
purposes of Part XI of the Income Tax Act. The foregoing opinions assume that
there will be no changes in the applicable legislation currently in effect prior
to the date of issue of the common shares.
MATERIAL CONTRACTS
The only material contracts entered into by the Company during the past two
year period or to which it has become a party, other than in the ordinary course
of business, are as follows:
1. the Amended and Restated Unanimous Shareholder Agreement dated
October 26, 1999 among the Company and its existing shareholders;
2. the U.S. underwriting agreement dated - , 2000 referred to under
"Underwriting"; and
3. the Canadian underwriting agreement dated - , 2000 referred to under
"Underwriting".
Copies of these agreements, or the relevant provisions thereof, will be
available for inspection at the head office of the Company during normal
business hours during the course of distribution and for a period of 30 days
thereafter.
67
<PAGE>
[ADDITIONAL PAGE FOR CANADIAN PROSPECTUS]
PROMOTERS
Gregory Wolfond and Christopher Erickson, the Company's Chairman and Chief
Executive Officer, and President, respectively, may each be considered a
promoter of the Company for purposes of Canadian securities laws. In addition to
the executive compensation that each received from the Company which is
disclosed under "Management--Executive Compensation", the Company in September
1997 issued to an entity controlled by Mr. Wolfond 3,999,800 common shares,
together with an option to purchase an additional 4,000,000 common shares for an
aggregate purchase price of approximately Cdn.$2.0 million. See "Certain
Transactions--Blue Sky Capital Corporation and 1319079 Ontario Inc."
PURCHASERS' STATUTORY RIGHTS
Securities legislation in several of the Canadian provinces provides the
purchasers with the right to withdraw from an agreement to purchase securities
within two business days after receipt or deemed receipt of a prospectus and any
amendment. In several of the provinces, securities legislation further provides
the purchaser with remedies for rescission or, in some jurisdictions, damages
where the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that such remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by the
securities legislation of his province. The purchaser should refer to any
applicable provisions of the securities legislation of his province for the
particulars of these rights or consult with a legal adviser.
68
<PAGE>
[ADDITIONAL PAGE FOR CANADIAN PROSPECTUS]
CERTIFICATE OF THE COMPANY
Dated: January 12, 2000
The foregoing, as of the date of the supplemented prospectus providing the
information permitted to be omitted from this prospectus, will constitute full,
true and plain disclosure of all material facts relating to the securities
offered by this prospectus as required by the securities laws of all the
provinces of Canada and, for the purpose of the SECURITIES ACT (Quebec), will
not contain any misrepresentation likely to affect the value or the market price
of the securities to be distributed.
<TABLE>
<S> <C>
(Signed) GREGORY WOLFOND (Signed) KAREN BASIAN
Chairman and Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) CHRISTOPHER ERICKSON (Signed) ANDRE BOYSEN
Director Director
</TABLE>
C-1
<PAGE>
[ADDITIONAL PAGE FOR CANADIAN PROSPECTUS]
CERTIFICATE OF THE UNDERWRITERS
Dated: January 12, 2000
To the best of our knowledge, information and belief, the foregoing, as of
the date of the supplemented prospectus providing the information permitted to
be omitted from this prospectus, will constitute full, true and plain disclosure
of all material facts relating to the securities offered by this prospectus as
required by the securities laws of all the provinces of Canada and, for the
purpose of the SECURITIES ACT (Quebec), to our knowledge, this prospectus will
not contain any misrepresentation likely to affect the value or the market price
of the securities to be distributed.
<TABLE>
<S> <C> <C>
NESBITT BURNS INC. RBC DOMINION SECURITIES INC. CREDIT SUISSE FIRST BOSTON
SECURITIES CANADA INC.
By: (Signed) W. J. BLAIR AGNEW By: (Signed) DANIEL R. COHOLAN By: (Signed) CHRISTOPHER LEGG
</TABLE>
The following are the names of every person or company having an interest,
either directly or indirectly, to the extent of not less than 5% in the capital
of:
NESBITT BURNS INC.: a wholly-owned subsidiary of The Nesbitt Burns Corporation
Limited, an indirect majority-owned subsidiary of a Canadian chartered bank;
RBC DOMINION SECURITIES INC.: an indirect wholly-owned subsidiary of a Canadian
chartered bank; and
CREDIT SUISSE FIRST BOSTON SECURITIES CANADA INC.: an indirect subsidiary of
Credit Suisse First Boston, a Swiss bank.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below lists the fees and expenses, other than underwriting
discounts and commissions, which the registrant will pay in connection with the
offering described in this registration statement. All the expenses are
estimates, except for the Securities and Exchange Commission registration fee,
the Canadian Securities Regulators Filing Fees, The Nasdaq National Market
listing fee, the NASD filing fee and The Toronto Stock Exchange listing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission Registration Fee......... $23,680
NASD Filing Fee............................................. 10,500
Canadian Securities Regulators Filing Fees.................. 8,792
Nasdaq National Market listing fee.......................... 95,000
Toronto Stock Exchange listing fee..........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing and engraving expenses.............................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
-------
TOTAL....................................................... $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DIRECTORS' AND OFFICERS' INDEMNIFICATION
Under the Business Corporations Act (Ontario), we are permitted to indemnify
our directors and officers and former directors and officers against costs and
expenses, including amounts paid to settle an action or satisfy a judgment in a
civil, criminal or administrative action or proceeding to which they are made
parties because of their position as directors or officers, including an action
against us. In order to be entitled to indemnification under this Act, the
director or officer must act honestly and in good faith with a view to our best
interests, and in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, the director or officer must have
reasonable grounds for believing that his or her conduct was lawful.
Under our by-laws, we are permitted to indemnify our subsidiaries' current
and former directors and our and our subsidiaries' current and former officers,
employees and agents. Our by-laws also provide that, to the fullest extent
permitted by the Act, we are authorized to purchase and maintain insurance on
behalf of our and our subsidiaries' current and past directors, officers,
employees and agents against any liability incurred by them in their duties. Our
shareholder agreement with our strategic investors listed under "Principal
Shareholders" also requires us to indemnify our directors under specified
circumstances. We believe that the provisions of our by-laws and the
shareholders' agreement are necessary to attract and retain qualified persons as
directors and officers.
Currently, there is no pending litigation or proceeding where a current or
past director, officer or employee is seeking indemnification, nor are we aware
of any threatened litigation that may result in claims for indemnification. We
intend to increase the coverage provided under our current directors and
officers liability insurance policy.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In September 1997, we issued 3,999,800 common shares, together with an
option to purchase an additional 4,000,000 of our common shares, to an entity
controlled by our Chairman and Chief Executive Officer, for an aggregate
purchase price of approximately Cdn.$2.0 million. The option was transferred to
a second entity under his control, and was exercised in October 1998 at an
exercise price of Cdn.$0.50 per share.
In April 1998, we issued 1,000,000 common shares to Bank of Montreal for a
purchase price of Cdn.$1.00 per share, together with an option to purchase an
additional 2,428,570 shares for an aggregate purchase price of
Cdn.$1.0 million. In October 1998, Bank of Montreal exercised the option to
subscribe for 2,428,570 common shares for Cdn.$1,000,000.
In June 1999, Bank of America Corporation purchased 541,790 of our common
shares for $2.0 million, together with an option to purchase an additional
541,790 common shares at a price of $3.69 per share. In August 1999, the Company
issued to Bank of America an option to purchase 2,116,420 common shares at a
price of $3.90 per common share. The option was exercised in October 1999. The
weighted average price per share of the common shares issued to Bank of America
was $3.83 per share.
In July 1999, Citicorp Strategic Technology Corporation purchased 950,000 of
our common shares for $3.83 per share, and agreed to purchase an additional
5,450,000 common shares at a price of $3.83 per share upon the satisfaction of
certain conditions. The option was exercised in October 1999.
In August 1999, Sonera Corporation subscribed for 6,400,000 shares for $3.83
per share.
Through September 30, 1999, we issued options to our officers, directors,
employees and advisors to purchase an aggregate of 2,211,594 of our common
shares.
In October 1999, we issued 6,757,190 common shares for an aggregate
subscription price of $25.8 million, 2,116,420 common shares at a price per
share of $3.90 and for an aggregate subscription price of $8.2 million,
541,790 common shares at a price per share of $3.69 and for an aggregate
subscription price of $2.0 million, and 666,666 common shares and
666,668 common shares issuable upon the exercise of a warrant at an exercise
price per share of $7.50 for an aggregate subscription price of $5,000,010.
Each of these sales was exempt from the registration requirements of the
Securities Act of 1933 under Section 4(2) thereof or Regulation S thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
- --------------------- ----------------
<S> <C>
1.1(1) Form of U.S. Underwriting Agreement.
1.2(1) Form of Canadian Underwriting Agreement.
3.1(1) Articles of Amalgamation of the Registrant.
3.2(1) By-laws of Registrant.
5.1(2) Opinion of Goodman Phillips & Vineberg, Toronto with respect
to the validity of the shares.
10.1(2) Subscription Agreement between Bank of Montreal, the
Registrant and Blue Sky Capital Corporation, dated
April 30, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
- --------------------- ----------------
<S> <C>
10.2 Amended and Restated Unanimous Shareholders' Agreement among
the Registrant and its Shareholders.
10.3(2)(3) Technology License Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.4(2) Mutual Indemnity Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.5(2) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.6(2) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.7(2) Letter Agreement, dated July 26, 1999, between Bank of
Montreal and the Registrant.
10.8(2)(3) Technology License Agreement, dated June 1, 1999, between
the Registrant and Bank of America, N.A. (as successor to
Bank of America National Trust & Savings Association).
10.9(2)(3) Software Maintenance and Support Agreement, dated June 1,
1999, between the Registrant and Bank of America, N.A. (as
successor to Bank of America National Trust & Savings
Association).
10.10(2) Letter Agreement, dated July 31, 1998, between Dr. Kerry
McLellan and the Registrant.
10.11(1) Lease, dated April 23, 1998, between Truscan Property
Corporation and the Registrant, as amended.
10.12(3) Master Technology License Agreement, dated December 29,
1999, between Citicorp Strategic Technology Corporation
and the Registrant.
10.13(2) Support Agreement, dated December 29, 1999, among Citicorp
Strategic Technology Corporation, 724 Solutions
International SRL and the Registrant.
11.1(2) List of Subsidiaries.
23.1(2) Consent of Goodman Phillips & Vineberg, Toronto (contained
in Exhibit 5.1).
23.2(2) Consent of Morrison & Foerster LLP.
23.3 Consent of KPMG LLP.
24.1(2) Powers of Attorney (included on the signature pages).
27.1(2) Financial Data Schedule.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
None.
- ------------------------
(1) To be filed by amendment.
(2) Previously filed.
(3) Confidential treatment has been requested with respect to certain portions
of the Exhibit. Omitted portions will be filed separately with the
Securities and Exchange Commission.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(3) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of
this registration statement as of the time it was declared effective; and
(b) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing of this Amendment to Form F-1 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Toronto, Ontario on January 13, 2000.
<TABLE>
<S> <C> <C>
724 SOLUTIONS INC.
Per: /s/ GREGORY WOLFOND
-----------------------------------------
Gregory Wolfond
CHAIRMAN AND CEO
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amended registration statement has been signed by the following persons in the
capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman and Chief Executive
------------------------------------------- Officer (principal January 13, 2000
Gregory Wolfond executive officer)
*
------------------------------------------- President, General Counsel, January 13, 2000
Chris Erickson Secretary and Director
*
------------------------------------------- Chief Technology Officer and January 13, 2000
Andre Boysen Director
*
------------------------------------------- Chief Operating Officer and January 13, 2000
Kerry McLellan Director
* Chief Financial Officer
------------------------------------------- (principal financial and January 13, 2000
Karen Basian accounting officer)
*
------------------------------------------- Director January 13, 2000
Lloyd F. Darlington
*
------------------------------------------- Director January 13, 2000
Martin A. Stein
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director January 13, 2000
James D. Dixon
*
------------------------------------------- Director January 13, 2000
Harri Vatanen
*
------------------------------------------- Director January 13, 2000
Alan Young
</TABLE>
<TABLE>
<S> <C> <C> <C>
* /s/ GREGORY WOLFOND
- -------------------------------------------
By: Gregory Wolfond, as
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
as amended, the undersigned has signed this amended Registration Statement
solely in the capacity of the duly authorized representative of
724 Solutions Inc. in the U.S., on January 13, 2000.
<TABLE>
<S> <C> <C>
724 SOLUTIONS CORP.
Per: /s/ KAREN BASIAN
-----------------------------------------
Name: Karen Basian
Title: Treasurer
</TABLE>
II-7
<PAGE>
724 SOLUTIONS INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. NAME OF DOCUMENT
- --------------------- ------------------------------------------------------------
<S> <C>
1.1(1) Form of U.S. Underwriting Agreement.
1.2(1) Form of Canadian Underwriting Agreement.
3.1(1) Articles of Amalgamation of the Registrant.
3.2(1) By-laws of Registrant.
5.1(2) Opinion of Goodman Phillips & Vineberg, Toronto with respect
to the validity of the shares.
10.1(2) Subscription Agreement between Bank of Montreal, the
Registrant and Blue Sky Capital Corporation, dated
April 30, 1998.
10.2 Amended and Restated Unanimous Shareholders' Agreement among
the Registrant and its Shareholders.
10.3(2)(3) Technology License Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.4(2) Mutual Indemnity Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.5(2) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.6(2) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.7(2) Letter Agreement, dated July 26, 1999, between Bank of
Montreal and the Registrant.
10.8(2)(3) Technology License Agreement, dated June 1, 1999, between
the Registrant and Bank of America, N.A. (as successor to
Bank of America National Trust & Savings Association).
10.9(2)(3) Software Maintenance and Support Agreement, dated June 1,
1999, between the Registrant and Bank of America, N.A. (as
successor to Bank of America National Trust & Savings
Association).
10.10(2) Letter Agreement, dated July 31, 1998, between Dr. Kerry
McLellan and the Registrant.
10.11(1) Lease, dated April 23, 1998, between Truscan Property
Corporation and the Registrant, as amended.
10.12(3) Master Technology License Agreement, dated December 29,
1999, between Citicorp Strategic Technology Corporation
and the Registrant.
10.13(2) Support Agreement dated December 29, 1999, among Citicorp
Strategic Technology Corporation, 724 Solutions
International SRL and the Registrant.
11.1(2) List of Subsidiaries.
23.1(2) Consent of Goodman Phillips & Vineberg, Toronto (contained
in Exhibit 5.1).
23.2(2) Consent of Morrison & Foerster LLP.
23.3 Consent of KPMG LLP.
24.1(2) Powers of Attorney (included on the signature pages).
27.1(2) Financial Data Schedule.
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) Previously filed.
(3) Confidential treatment has been requested with respect to certain portions
of the Exhibit. Omitted portions will be filed separately with the
Securities and Exchange Commission.
<PAGE>
UNANIMOUS SHAREHOLDERS' AGREEMENT
THIS AGREEMENT is made as of the 26th day of October, 1999.
A M O N G:
724 SOLUTIONS INC., a corporation amalgamated under the laws of
Ontario, having its principal place of business at 4101 Yonge
Street, Suite 702, Toronto, Ontario, Canada M2P 1N6 (the
"CORPORATION")
-AND-
BLUE SKY CAPITAL CORPORATION, a corporation incorporated under the
laws of Ontario, having its principal place of business at 181 Bay
Street, Suite 2810, Toronto, Ontario, Canada M5J 2T3 ("BLUE SKY")
-AND-
1319079 ONTARIO INC., a corporation incorporated under the laws of
Ontario, having its principal place of business at 181 Bay Street,
Suite 2810, Toronto, Ontario, Canada M5J 2T3 ("1319079")
-AND-
BANK OF MONTREAL, a chartered Canadian bank, having an office at
55 Bloor Street West, 3rd Floor, Toronto, Ontario, Canada M4W 3N5
("BMO")
-AND-
BANK OF AMERICA CORPORATION, a corporation incorporated under the
laws of Delaware, having a place of business at Bank of America
Corporate Center, 100 North Tryon Street, Charlotte, North
Carolina, U.S.A. 28255 ("BAC")
-AND-
CITICORP STRATEGIC TECHNOLOGY CORPORATION, a corporation
incorporated under the laws of Delaware, having a place of
business at 399 Park Avenue, New York, New York, U.S.A. 10043
("CSTC")
-AND-
CITICORP, a corporation incorporated under the laws of Delaware,
having a place of business at 399 Park Avenue, New York, New York,
U.S.A. 10043 ("CITICORP")
<PAGE>
- 2 -
-AND-
SONERA CORPORATION, a corporation incorporated under the laws of
Finland, having a place of business at Fin-00051, Sonera,
Teollisuuskatu 15, FIN-00510-Helsinki, Finland ("SONERA")
-AND-
WFC HOLDINGS CORPORATION, a corporation formed under the laws of
the State of Delaware, having an office at 455 Market Street, San
Francisco, California, U.S.A. 94105 ("WFC")
-AND-
FINANCIAL TECHNOLOGY VENTURES (Q), L.P., a limited partnership
established under the laws of the State of Delaware, having a
principal office at 601 California Street, 22nd Floor, San
Francisco, CA 94108 ("FTV1")
-AND-
FINANCIAL TECHNOLOGY VENTURES, L.P., a limited partnership
established under the laws of the State of Delaware, having a
principal office at 601 California Street, 22nd Floor, San
Francisco, CA 94108 ("FTV2")
(FTV1 and FTV2 shall hereinafter be referred to as "FTV")
-AND-
HSBC INVESTMENT BANK PLC., a company duly organized and existing
under the laws of England, having a registered office at Thames
Exchange, 10 Queen Street Place, London, England, EC4R 1BL
("HSBC")
WHEREAS, as at the date hereof, there are 14,701,213 issued and
outstanding Common Shares and securities representing the right to subscribe for
333,334 Common Shares, in each case, registered and beneficially owned as
follows:
<TABLE>
<S> <C>
Blue Sky 2,000,000
1319079 2,000,000
BMO 1,714,285
BAC 1,600,000
CSTC 3,200,000
Sonera 3,200,000
WFC 392,157
</TABLE>
<PAGE>
- 3 -
<TABLE>
<S> <C>
FTV1 252,105
FTV2 9,333
HSBC 333,333
and the HSBC Warrant to
purchase, pursuant to and in
accordance with the provisions
thereof, 333,334 Common Shares
</TABLE>
AND WHEREAS the parties wish to enter into this Agreement to amend
and restate the provisions of the October 19, 1999 Unanimous Shareholders'
Agreement as herein provided for the purposes of, among other things,
recognising HSBC as a Strategic Partner, and in order to make arrangements
regarding the organization and affairs of the Corporation and the transfer of
their securities of the Corporation under certain circumstances;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the mutual covenants herein contained and other good and valuable consideration
(the receipt and sufficiency of which is hereby acknowledged), the parties
covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS.
As used in this Agreement, the following words and phrases shall
have the following meanings, respectively:
(a) "1933 ACT" - means the UNITED STATES SECURITIES ACT OF 1933, as
amended;
(b) "ACT" - means the BUSINESS CORPORATIONS ACT (Ontario);
(c) "AFFILIATE" - has the following meaning:
(i) one body corporate (as defined in Section 1.1(eee)) shall
be affiliated with another body corporate if, but only
if, one of them is the Subsidiary of the other or both
are Subsidiaries of the same body corporate or each of
them is controlled by the same person;
(ii) for the purposes of the definition of "Affiliate" and
"Subsidiary", a body corporate shall be considered to be
controlled by a person or by two or more bodies corporate
if, but only if:
(A) voting securities of the first-mentioned body
corporate carrying more than 50% of the votes for
the election of directors are held, other than by
way of security only, by or for the benefit of
such
<PAGE>
- 4 -
other person or by or for the benefit of such
other bodies corporate; and
(B) the votes carried by such securities are
sufficient, if exercised, to elect a majority of
the board of directors of the first-mentioned body
corporate;
(iii) an "Affiliate" of a specified person that is not a body
corporate is a person that directly, or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with, the
person specified. In this case, "control" (including the
terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the
power to elect a majority of such specified person's
board of directors or similar governing body, or
otherwise having the power to direct the business and
policies of such specified person pursuant to the terms
of the organisational documents of such specified person.
(d) "APPLICABLE LAW" - means, with respect to any person, property,
transaction, event or other matter, any law, rule, statute,
regulation, order, judgment, decree, treaty or other requirement
having the force of law (collectively, the "Law") relating or
applicable to such person, property, transaction, event or other
matter. Applicable Law also includes, where appropriate, any
interpretation of the Law (or any part) by any person having
jurisdiction over it, or charged with its administration or
interpretation;
(e) "APRIL 1998 UNANIMOUS SHAREHOLDERS' AGREEMENT" - means that
certain unanimous shareholders' agreement between the Corporation,
BMO and Blue Sky dated as of April 30, 1998 concerning the
Corporation, which agreement was terminated and replaced by the
original version of the October 19, 1999 Unanimous Shareholders'
Agreement;
(f) "ARM'S LENGTH" - has the meaning given to such term in Schedule
"1.1(f)";
(g) "ARTICLES" - means the original or restated articles of
incorporation, certificate of incorporation, articles of
amalgamation, articles of arrangement, articles of continuance,
articles of reorganization, articles of revival, letters patent,
memorandum of agreement, special act or statute and any other
instrument or constating document by or pursuant to which a
corporation is incorporated or comes into existence;
(h) "ASSOCIATE" - where used to indicate a relationship with any
person or company means:
(i) any company of which such person or company beneficially
owns, directly or indirectly, voting securities carrying
more than 10% of the voting rights attached to all voting
securities of the company for the time being outstanding;
<PAGE>
- 5 -
(ii) any partner of that person or company;
(iii) any trust or estate in which such person or company has a
substantial beneficial interest or as to which such
person or company serves as trustee or in a similar
capacity;
(iv) any relative of that person who resides in the same home
as that person;
(v) any person of the opposite sex who resides in the same
home as that person and to whom that person is married or
with whom that person is living in a conjugal
relationship outside marriage, or
(vi) any relative of a person mentioned in clause (v) who has
the same home as that person;
(i) "BAC" - means Bank of America Corporation, a corporation
incorporated under the laws of the State of Delaware, the shares
of common stock of which are listed on the New York Stock
Exchange;
(j) "BANK ACT" - means the BANK ACT (Canada);
(k) "BMO CONTINUING ALLIANCE" - means the continuing alliance between
the Corporation and BMO pursuant to which BMO may continue as a
development partner with the Corporation to license the
Corporation's technology after the BMO Second Anniversary pursuant
to and in accordance with the provisions of the BMO Technology
License Agreement;
(l) "BMO SECOND ANNIVERSARY" - means March 1, 2000 or, if extended by
BMO in accordance with Section 2.3.1 of the BMO Subscription
Agreement, June 1, 2000, as the case may be;
(m) "BMO SUBSCRIPTION AGREEMENT" - means that certain share
subscription agreement between Blue Sky, BMO and the Corporation
dated April 30, 1998, as amended by an amending agreement dated as
of October 15, 1998;
(n) "BMO TECHNOLOGY LICENSE AGREEMENT" - means that certain technology
license agreement between the Corporation and BMO dated April 30,
1998, as amended by letter agreements dated November 27, 1998 and
July 26, 1999;
(o) "BOARD OF DIRECTORS" - the board of directors of the Corporation
from time to time;
(p) "BOFA TECHNOLOGY LICENSE AGREEMENT" - means that certain
technology license agreement between the Corporation and Bank of
America National Trust & Savings Association, an Affiliate of BAC,
dated June 1, 1999;
(q) "BUSINESS" - means the business of the Corporation, being the
business of researching, designing, developing, marketing,
licensing, supporting, advising on
<PAGE>
- 6 -
and operating technology that provides both consumers and
businesses (in Canada, the United States of America and
globally) with access to electronic banking, brokerage,
payment, content, e-commerce and other applications (including
similar and complementary applications) over a variety of
access platforms, such as Internet-enabled devices, and which
business (A) is carried on by the Corporation in a meaningful
manner in Canada, the United States of America and globally,
and (B) includes an emphasis on financial transactions;
(r) "BUSINESS DAY" - means any day other than a Saturday, Sunday or
statutory holiday in Toronto (Ontario), New York (NY) or
Helsinki (Finland);
(s) "COMMON SHARE" or "EQUITY SHARE" or "EQUITY SECURITY" - means a
common share in the capital of the Corporation and includes
other fully-participating equity shares (whether or not
entitled to voting rights) in the capital of the Corporation
which, if any, are issued pursuant to the Stock Option Plan;
provided however that, subject to Applicable Law, with respect
to those matters or actions contemplated herein which, to be
implemented or to effect the implementation thereof, require an
approval, a consent or an authorization which is based on
achieving or exceeding a certain threshold level of the votes
cast by one or more holders of Common Shares, the term "Common
Shares" shall only refer to the common shares in the capital of
the Corporation;
(t) "COMPANY REGISTRATION" - means an offering by the Corporation
(on its behalf or on behalf of any selling Shareholder) of any
of its equity shares or other securities to the public solely
for cash proceeds pursuant to a prospectus or registration
statement under the securities laws of one or more Provinces of
Canada and/or of the United States (including, without
limitation, for the purpose of qualification or registration of
securities held by shareholders other than a shareholder
contemplating exercising its Piggyback Registration Rights);
provided, however, that a Company Registration shall not
include: (i) a registration relating solely to participants in
the Stock Option Plan or other employee incentive or benefit
plans; (ii) a registration relating solely to transactions
covered by Rule 145 under the 1933 Act registered on Form S-4
or similar form that may be promulgated in the future; (iii) a
registration relating solely to a matter which does not require
a prospectus or registration statement to include (explicitly
or through incorporation by reference) substantially the same
information as would be required to be included in a
registration statement covering the sale to the public of
Common Shares held by the Founding Shareholder or the Strategic
Partners; and (iv) a registration in which the only equity
securities being registered are those issuable upon conversion
of debt securities which are also being registered;
(u) "COMPETITOR" - means any person or entity which, directly or
indirectly through any Affiliate or Associate of such person or
entity: (i) carries on the Business; and (ii) competes
materially with the Corporation as determined by the Board of
Directors acting reasonably;
<PAGE>
- 7 -
(v) "COMPETITOR OF BMO" - means any financial institution or any
Affiliate or Subsidiary thereof (other than the Strategic
Partners who are Shareholders as at the date hereof or their
respective Affiliates and Subsidiaries) that: (a) provides
personal or commercial deposit services in Canada, or (b) is
engaged in the provision of full or discount brokerage services
in Canada, where, in either case, the consolidated deposits and
brokerage assets under management or administration in Canada
of such institution, its Affiliates and Subsidiaries is greater
than CDN $20 billion;
(w) "CONFIDENTIAL INFORMATION" - means in this Agreement (and, for
greater certainty, without prejudice to those matters governed
by any other contract between a Shareholder, or an Affiliate or
Subsidiary thereof, and the Corporation), all information
(including the terms and provisions hereof) concerning the
business and affairs of the Corporation or any of its
Affiliates or Subsidiaries of a confidential, non-public or
proprietary nature (which information shall include, without
limitation, trade secrets, know-how, intellectual property,
marketing plans, cost figures, client lists, names and
addresses of suppliers and customers, business contracts,
software and operating systems, and information relating to
employees and other persons in a contractual relationship with
the Corporation or any of its Affiliates and Subsidiaries),
obtained, made available or disclosed in circumstances where
the recipient (the "Recipient") ought reasonably to know that
such information obtained directly or indirectly from, made
available or disclosed by or on behalf of the Corporation or
any Affiliate or Subsidiary thereof (the "Disclosing Party"),
was obtained directly or indirectly from, made available or
disclosed with an expectation on the part of the Corporation
and/or the Disclosing Party that such information would be held
in confidence by the Recipient and its employees, officers,
agents or advisors. Confidential Information does not include
any such information which: (i) at the time of its disclosure
is publicly available through no fault of any person owing a
duty of confidentiality to the Corporation or its Affiliate or
Subsidiary; (ii) after disclosure, is released to the public by
the Disclosing Party without restriction or otherwise properly
becomes part of the public domain through no fault or action of
the Recipient (but only after it is released or otherwise
becomes part of the public domain); (iii) the Recipient can
demonstrate was known to the Recipient or was in its possession
at the time of disclosure and which was not acquired by such
party directly or indirectly under any obligation of confidence
to the Corporation or its Affiliates or Subsidiaries or from a
person who, to the knowledge of the Recipient after exercising
due diligence, owed an obligation of confidentiality to the
Corporation or its Affiliates or Subsidiaries with regard to
such information (for the purposes of this subsection (iii)
information shall also be treated as confidential after the
Disclosing Party shall have demonstrated to the Recipient that,
notwithstanding its due diligence at the time of disclosure,
the source of the information was in fact under a duty of
confidentiality to the Corporation or its Affiliates or
Subsidiaries with regard to such information - the Recipient
shall not be liable for having acted in good faith that such
information was not confidential until so informed); or (iv)
the Recipient can demonstrate was independently
<PAGE>
- 8 -
developed by such Party without reference to or any use of the
Confidential Information of the Disclosing Party;
(x) "CONSTATING DOCUMENTS" - means, with respect to a corporation,
its Articles and its by-laws, all as amended from time to time;
(y) "CSTC SHARES" - has the meaning ascribed to it in the recitals;
(z) "CSTC SUBSCRIPTION AGREEMENT" means that certain share
subscription agreement between the Corporation, Citicorp and
CSTC made as of July 23, 1999;
(aa) "DEMAND REGISTRATION" - means, individually or collectively, a
Founding Shareholder Demand Registration and/or a Strategic
Partner Demand Registration;
(bb) "EMPLOYEE SHAREHOLDERS" - means, so long as they are
Shareholders, any employee of the Corporation or its
Subsidiaries to whom, or to a member of whose Immediate Family,
Common Shares may be issued or transferred from time to time
and who become parties hereto and, for greater certainty,
excludes Greg Wolfond, the Founding Shareholder (including the
members thereof), the Strategic Partners, the Management
Shareholders and the Non-Employee Directors;
(cc) "FOUNDING SHAREHOLDER" - means collectively Greg Wolfond, Blue
Sky, 1319079 and their respective Permitted Transferees and
entities which become Shareholders in respect of which Greg
Wolfond holds a material interest; and for the purposes of this
definition, a material interest shall be deemed to be held by
Greg Wolfond if he directly or indirectly owns or holds a
majority of the voting rights in such entity; and a "MEMBER OF
THE FOUNDING SHAREHOLDER" means any person contemplated by this
definition of Founding Shareholder;
(dd) "FOUNDING SHAREHOLDER DEMAND REGISTRATION" - has the meaning
ascribed to it in Section 13.1(b) and "Founding Shareholder
Registration Request" has the meaning ascribed to it in Section
13.1;
(ee) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" OR "GAAP" - means
the current accounting principles recommended by the Canadian
Institute of Chartered Accountants in the "CICA Handbook" at
the relevant time, or in the event that the matter is not
covered in the CICA Handbook, principles having general
acceptance among accounting professionals in Canada at the
particular time; and, for greater certainty, the expensing of
all development costs in the year they are incurred shall, to
the extent not specifically prohibited by the CICA Handbook, be
deemed to be in accordance with GAAP;
(ff) "GOVERNMENTAL AUTHORITY" - means any governmental or
quasi-governmental authority including any federal, state,
provincial, territorial, county, municipal or other
governmental or quasi-governmental agency, board, parliament,
legislature,
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regulatory authority, agency, tribunal, commission, branch,
bureau, commission, court, department or other law, regulation
or rule-making entity (including a Minister of the Crown) or
other instrumentality or political unit or subdivision having
or purporting to have jurisdiction on behalf of any nation,
state, province, municipality, district or any subdivision
thereof;
(gg) "HSBC WARRANT" - means that certain warrant to purchase Common
Shares of the Corporation at U.S. $15.00 per Common Share dated
as of October 26, 1999 and identified by Serial No. W-1 issued
and granted by the Corporation to and in favour of HSBC
wherein, in general, the Corporation has granted to HSBC the
right to subscribe for or to purchase from the Corporation
333,334 Common Shares at a price of U.S. $15.00 per Common
Share, a copy of which is attached hereto as Schedule 1.1(gg),
which Schedule is incorporated herein by reference and deemed
to be part hereof, as such warrant may be amended, supplemented
or otherwise modified from time to time pursuant to and in
accordance with Section 1.20(c);
(hh) "IMMEDIATE FAMILY" - means, with respect to an individual
Shareholder or Principal, as the case may be:
(i) the spouse or issue of that Shareholder or Principal;
(ii) a corporation which has no registered or beneficial
shareholders other than the following (a "Permitted
Shareholder" for the purposes of this first paragraph of
this Section 1.1(hh)):
(A) that Shareholder or Principal; or
(B) the spouse and/or issue of that Shareholder or
Principal, as the case may be; or
(C) any trust or trusts described in paragraph (iii)
below,
provided that the issued and outstanding shares of such
corporation are free and clear of all claims, liens and
encumbrances whatsoever and no person other than a
Permitted Shareholder has any agreement or option or any
right capable of becoming an agreement for the purchase
of any of such shares and provided that the registered
and beneficial shareholders of such corporation shall
have executed and delivered to the other parties hereto
an agreement substantially in the form annexed hereto as
Schedule "6.2" and all share certificates of such
corporation shall at all relevant times during the term
of this Agreement have the legend set out in Section 19.1
endorsed thereon; or
(iii) a trust which has no trustees or beneficiaries (vested,
contingent or otherwise) other than that Shareholder
and/or Principal and/or the spouse and/or issue of that
Shareholder or Principal, as the case may be;
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and means with respect to a corporate Shareholder:
(i) the Principal and/or the spouse and/or issue of the
Principal of that Shareholder;
(ii) a corporation which has no registered or beneficial
shareholders other than the following (a "Permitted
Shareholder" for the purposes of this second paragraph of
this Section 1.1(hh)):
(A) the Principal of that Shareholder; or
(B) the spouse and/or issue of the Principal; or
(C) any trust or trusts described in paragraph (iii)
below,
provided that the issued and outstanding shares of such
corporation are free and clear of all claims, liens and
encumbrances whatsoever and no person, other than a
Permitted Shareholder, has any agreement or option or any
right capable of becoming an agreement for the purchase
of any of such shares and provided that the registered
and beneficial shareholders of such corporation shall
have agreed in writing with the parties hereto not to
enter into an agreement or option to sell, transfer,
assign, pledge, mortgage, charge, create a security
interest in, hypothecate or otherwise dispose of,
encumber or deal with, whether by will or otherwise, the
shares of such corporation or permit such corporation to
issue shares or grant options or rights in respect of the
shares of such corporation except to any member of the
Immediate Family of that Shareholder who shall have
executed and delivered a similar agreement, without the
prior written consent of the other Shareholders first had
and obtained, and all share certificates of such
corporation shall at all relevant times during the term
of this Agreement have the legend set out in Section 19.1
hereof endorsed thereon; or
(iii) a trust which has a majority of trustees who are the
Principal of the Shareholder or the spouse and/or issue
of such Principal and has no beneficiaries (vested,
contingent or otherwise) other than the Principal of
that Shareholder or the spouse and/or issue of such
Principal, as the case may be;
(ii) "INDEPENDENT DIRECTOR" - means an individual who is
independent of management of the Corporation, and each and
every one of the Strategic Partners, and is free from any
interest in any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the
individual's ability to act as a director of the Corporation
with a view to the best interests of the Corporation, other
than interests in relationships arising from shareholdings;
(jj) "INITIAL PUBLIC OFFERING" - means the issue of shares (or
securities convertible into or exchangeable for shares of the
Corporation) by the Corporation pursuant to
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a final prospectus for which a receipt is issued by a
securities commission or similar regulatory body in Canada,
and/or pursuant to an effective registration statement filed
with the United States Securities and Exchange Commission to
enable the sale of such securities to members of the public, or
the issue of any shares to the Shareholders by a corporation
which is a reporting issuer in a Province of Canada or public
company in any jurisdiction, pursuant to a reverse take-over
bid, statutory amalgamation, statutory arrangement or similar
transaction involving the Corporation and, in all cases, which
results in a class of Common Shares (or the securities of a
successor issuer) being listed and posted for trading on a
recognised stock exchange in Canada or the United States or
quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or the Canadian Dealing
Network Inc. ("CDN");
(kk) "MANAGEMENT SHAREHOLDERS" - means, so long as they are
Shareholders, those officers and senior employees of the
Corporation or its Subsidiaries who become, or a member of
whose Immediate Family become, Shareholders and parties hereto
and who are designated as "Management Shareholders" by the
Board of Directors for the purposes of this Agreement and, for
greater certainty, excludes Greg Wolfond, the Founding
Shareholder (including the members thereof), the Strategic
Partners, the Non-Employee Directors and the Employee
Shareholders;
(ll) "MANAGEMENT TEAM" - means those officers or senior employees of
the Corporation or its Subsidiaries who are designated as
described in Section 5.1;
(mm) "MATERIAL DECISION" - means any decision involving a matter
contemplated by either: (I) Section 1.1(mm)(i) (a "Category 1
Material Decision"); (II) Sections 1.1(mm)(ii) to, and
including, 1.1(mm)(xii) (individually, a "Category 2 Material
Decision"); (III) Sections 1.1(mm)(xiii) to, and including,
1.1(mm)(xxiv) (individually, a "Category 3 Material Decision");
and (IV) Section 1.1(mm)(xxv) (a "Category 4 Material
Decision"), as provided below:
CATEGORY 1 MATERIAL DECISION
(i) the taking of any action which may lead to or result in a
material change in the nature of the Business presently
contemplated to be carried on by the Corporation, or in
the discontinuance or termination of the Business of the
Corporation;
CATEGORY 2 MATERIAL DECISIONS
(ii) the redemption, purchase for cancellation, purchase or
other acquisition for value by the Corporation, directly
or indirectly, of any outstanding Common Shares, but
excluding purchases of Common Shares contemplated or
provided for pursuant to the terms of this Agreement;
(iii) the amendment of the provisions of the Corporation's
Constating Documents;
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(iv) any proposal to amalgamate or to effect a corporate
reorganization, arrangement, continuation, liquidation,
dissolution or winding-up of the Corporation or any other
transaction pursuant to which all or substantially all of
the assets of the Corporation would become the property
of another person;
(v) the conversion, exchange, reclassification,
redesignation, subdivision or consolidation of the Common
Shares or the amendment of the rights, privileges,
restrictions and conditions attaching to any Common
Shares or other change of or to any Common Shares;
(vi) the declaration or payment or setting aside for payment
of any dividends or any other distribution in respect of
any equity securities of the Corporation (save and except
for the payment of principal or interest with respect to
convertible debt or similar obligations which constitute
"equity" securities under GAAP);
(vii) changing the size of the Board of Directors (except
for: (I) decreases related to the loss of a Strategic
Partner's entitlement to a nominee; or (II) increases
related to the admission of a new Strategic Partner; or
(III) the minimum increases required, from time to
time, as a consequence of the appointment of additional
non-resident directors as a result of the admission of
new Strategic Partners, to allow the Founding
Shareholder to appoint additional Canadian-resident
directors from the Management Team pursuant to Section
4.2(a)(i)(C) so that the Corporation remains in
compliance with the provisions of the Act requiring a
majority of Canadian-resident directors);
(viii) removing any Independent Director appointed pursuant to
Section 4.2(a)(i)(B);
(ix) sale of any asset, otherwise than to an Affiliate or a
Subsidiary of the Corporation, which includes
intellectual property rights that are material to the
core functionality of the Corporation's products or
services;
(x) the removal of Greg Wolfond as Chairman or CEO of the
Corporation or any diminution of the nature or status of
his responsibilities or authority to act as Chairman and
CEO, or any change in his reporting relationship, from
that enjoyed as at July 1, 1999;
(xi) the subscription for or other agreement by the
Corporation to hold, take, purchase or acquire shares in
the capital of any other corporation for a subscription
price in excess of US$5 million;
(xii) the entering into of any exclusive licensing agreements
by the Corporation with respect to the Business
(excluding, however, exclusive licensing of technology
that is commissioned or requested by or for a particular
<PAGE>
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licensee or which is a work paid for outside of the
Corporation's normal licensing arrangements);
CATEGORY 3 MATERIAL DECISIONS
(xiii) effecting any acquisition having a transaction value
(including all cash and non-cash consideration paid,
liabilities assumed, the maximum present value of any
deferred payment or earn-out obligations and any
consideration payable under any related non-compete,
consulting or management services or similar
arrangements, excluding bona fide employment or
management arrangements) equal to or greater than
U.S.$10,000,000 or, in the event of transactions that
might be viewed as linked or part of a related series of
transactions, an aggregate of U.S.$20,000,000;
(xiv) the subscription for or other agreement by the
Corporation to hold, take, purchase or acquire shares in
the capital of any other corporation for a subscription
price that is less than or equal to US$5 million;
(xv) the implementation of a decision to commercialize a
category of access platforms for the Corporation's
internet-based and e-commerce applications, other than
the personal computer, mobile/wireless, set-top and
gaming categories or the implementation of a decision to
re-prioritise the Corporation's focus between categories
of access platforms previously approved for
commercialisation (for greater certainty, the undertaking
of research and development activities with respect to
potential new categories of access platforms shall NOT
constitute a "Material Decision" provided that research
and development activities, generally, are anticipated in
the then current business plan);
(xvi) except in the ordinary course of business, the entering
into by the Corporation of a partnership or any
arrangement for the sharing of profits, union of
interests, joint venture or reciprocal concession
arrangement with any person;
(xvii) the establishment or amendment or modification of any
employee stock plan (including the Stock Option Plan);
(xviii) effecting any sale of assets of the Corporation having a
transaction value equal to or greater than $250,000;
(xix) approving any budgets or business plans of the
Corporation;
(xx) except in the ordinary course of business, the making,
directly or indirectly, of loans or advances to, or
investment in, or the giving of security for, or the
guarantee of the indebtedness of, any person;
<PAGE>
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(xxi) except in the ordinary course of business, the
hypothecation, pledge, mortgage, charge or other
encumbrance by the Corporation of the whole of its
assets or any part thereof;
(xxii) any investment of funds of the Corporation in, or any
contract entered into by the Corporation with, any
person who does not deal at arm's length with the
officers of the Corporation as appointed by the Board
of Directors (for greater certainty, excluding
investments in or contracts with Subsidiaries of the
Corporation);
(xxiii) causing the Corporation to pursue and, if possible,
complete an Initial Public Offering (other than as
contemplated in Article 13 or Article 15);
(xxiv) the borrowing of funds (whether or not on the security
of the assets of the Corporation) in excess of
U.S.$10,000,000; and
CATEGORY 4 MATERIAL DECISION
(xxv) the proposed issuance of Common Shares to a new
Strategic Partner in accordance with Section 4.2(e)(i);
(nn) "NON-EMPLOYEE DIRECTORS" - means, so long as they are
Shareholders, those individuals who are members of the Board of
Directors and who become, or a member of whose Immediate Family
become, Shareholders and parties hereto and, for greater
certainty, excludes Greg Wolfond, the Management Shareholders and
the Employee Shareholders;
(oo) "NOTICE" - has the meaning given to such term in Section 19.2;
(pp) "OCTOBER 19, 1999 UNANIMOUS SHAREHOLDERS' AGREEMENT" - means that
certain unanimous shareholders' agreement originally executed June
1, 1999 and amended and restated as of August 2, 1999 and as of
October 19, 1999, among the Corporation, Blue Sky, 1319079, BMO,
BAC, Citicorp, CSTC, Sonera, WFC, FTVI and FTV2, which agreement
is further amended and restated by this Agreement;
(qq) "OPTIONS" - means options to acquire Common Shares granted
pursuant to the Stock Option Plan;
(rr) "OSFI" - means the Office of the Superintendent of Financial
Institutions or such replacement supervisory or administrative
body or Governmental Authority as may be established pursuant to
the Bank Act;
(ss) "PERMITTED TRANSFEREE" - means:
(i) with respect to any Shareholder other than a Strategic
Partner, a member of the Immediate Family of the
Shareholder, provided that such member
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of the Immediate Family of the Shareholder is not a
Competitor or a Competitor of BMO;
(ii) with respect to the Founding Shareholder, any of its
Affiliates or Subsidiaries, provided that such Affiliate
or Subsidiary is not a Competitor or a Competitor of BMO;
(iii) with respect to BMO or BAC, any of their respective
Affiliates or Subsidiaries, provided that: (I) such
Affiliate or Subsidiary, if not wholly-owned directly
or indirectly by BMO or BAC, as the case may be, is not
a Competitor; (II) in the case of BMO or any subsequent
assignee of its interest, if the Affiliate or
Subsidiary to which shares of the Corporation are being
transferred is a non-Canadian entity, then if the
Corporation or the Founding Shareholder objectively
demonstrate at any time or from time to time after such
transfer that, in the particular circumstances then
applicable, BMO holding its interest in the Corporation
through such non-Canadian entity would subject a
particular transaction to foreign-investment review
pursuant to Applicable Law in Canada or result in
additional costs or significant impediments or
significant loss of benefits to either the Corporation
or the Founding Shareholder pursuant to applicable
taxation or securities laws, then BMO will cause such
shareholding to be transferred to a Canadian Affiliate
or Subsidiary of BMO; and (III) in the case of BAC or
any subsequent assignee of its interest, the Affiliate
or Subsidiary to which shares of the Corporation are
being transferred shall be a resident of Canada or the
United States for purposes of applicable taxation and
securities laws;
(iv) with respect to CSTC or Sonera, any of their respective
Affiliates or Subsidiaries, provided that:
(A) such Affiliate or Subsidiary, if not wholly-owned
directly or indirectly by the transferor, is not a
Competitor; and
(B) in the case of CSTC or any subsequent assignee of
its interests, the Affiliate or Subsidiary to
which shares of the Corporation are being
transferred shall be a resident of Canada, the
United States or the United Kingdom for the
purposes of applicable taxation and securities
laws; and
(C) in the case of Sonera or any subsequent assignee
of its interests, the Affiliate or Subsidiary to
which shares of the Corporation are being
transferred shall be a resident of Canada,
Finland, Belgium, Holland or the United Kingdom
for the purposes of applicable taxation and
securities laws;
(v) with respect to WFC, any of its Affiliates or
Subsidiaries, provided that:
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(A) such Affiliate or Subsidiary, if not wholly-owned
directly or indirectly by the transferor, is not a
Competitor; and
(B) in the case of WFC or any subsequent assignee of
its interest, the Affiliate or Subsidiary to which
shares of the Corporation are being transferred
shall be a resident of Canada or the United States
for purposes of applicable taxation and securities
laws;
(vi) with respect to FTV1 and FTV2;
(A) any of their respective Affiliates which is
controlled by FTV1 or FTV2, as the case may be and
excluding Affiliates that control FTV1 or FTV2,
provided that such Affiliate is not a Competitor;
or
(B) a liquidating trust for the benefit of the
partners of the particular limited partnership,
provided that the trustee(s) are not affiliated in
any way with a Competitor and provided that the
sole beneficiaries of such liquidating trust are
the partners of the limited partnership being
dissolved; and
(vii) with respect to HSBC, any of its Affiliates or
Subsidiaries, provided that:
(A) such Affiliate or Subsidiary, if not wholly-owned
directly or indirectly by the transferor, is not a
Competitor; and
(B) in the case of HSBC or any subsequent assignee of
its interest, the Affiliate or Subsidiary to which
shares of the Corporation are being transferred
shall be a resident of Canada, the United States,
Finland, Belgium, Holland, Hong Kong or the United
Kingdom for purposes of applicable taxation and
securities laws; and
(tt) "PERSON" - means an individual, partnership, unincorporated
association, organization, syndicate, corporation, trust and a
trustee, executor, administrator or other legal or personal
representative;
(uu) "PIGGYBACK REGISTRATION" - has the meaning given to such term in
Section 13.2 and in Section 14.2;
(vv) "PLACE OF CLOSING" - means the offices of the solicitors for the
purchaser in the subject transaction or such other place as may be
agreed to in writing by the vendor and the purchaser in the
subject transaction;
(ww) "PRINCIPAL" - means: (i) with respect to any Shareholder which is
not an individual or a Strategic Partner or the Founding
Shareholder, the employee, director or officer of the Corporation
or its Subsidiaries who (together with his or her Immediate
Family) controls the Shareholder; and (ii) with respect to those
Affiliates and Subsidiaries of the following Shareholders to which
securities of the Corporation are issued or transferred from time
to time, the particular
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Shareholder of which the subscriber or transferee is the
Affiliate or Subsidiary: the Founding Shareholder, BMO, BAC,
CSTC, Sonera, WFC, FTV1, FTV2 and HSBC; and, for greater
certainty, Citicorp is the Principal of CSTC;
(xx) "PRIME BANK RATE" - the commercial lending rate of interest,
expressed as an annual rate, which Bank of Montreal quotes in
Toronto as the reference rate of interest from time to time
(commonly known as "prime") for the purpose of determining the
rate of interest that it charges to its commercial customers for
loans in Canadian funds;
(yy) "SECURITIES ACT" - means the SECURITIES ACT (Ontario);
(zz) "SHAREHOLDER" - means the Founding Shareholder, BMO, BAC, CSTC,
Sonera, WFC, FTV1, FTV2 and HSBC, the Management Shareholders,
Non-Employee Directors and the Employee Shareholders and any other
person who becomes a shareholder of the Corporation and whose
holding is permitted in accordance with the terms hereof, in each
case so long as they are shareholders of the Corporation; and
"SHAREHOLDERS" shall have a corresponding meaning;
(aaa) "SHARES" or "SECURITIES" - means all shares, options (including
without limitation the Options) warrants, interests,
participations or other equivalents (regardless of how
designated) of or in a corporation, unlimited liability
company, partnership, limited partnership or equivalent entity,
whether voting or non-voting or participating or
non-participating, or any securities, bonds, notes, debentures
or other evidences of indebtedness that are convertible into or
exchangeable for any of the foregoing;
(bbb) "STOCK OPTION PLAN" - means the stock option plan of the
Corporation adopted as of September 15, 1997, as amended or
replaced from time to time in accordance with the provisions
hereof, which currently provides for the granting of options to
acquire up to 1,000,000 Common Shares (subject to adjustment in
accordance with the terms thereof), and in respect of which the
Board of Directors has authorized an amendment or supplementary
plan in respect of 250,000 equity shares;
(ccc) "STRATEGIC PARTNER" - means, so long as they or any of their
Permitted Transferees is a Shareholder, each of BMO, BAC, CSTC,
Sonera, WFC, FTV, HSBC and such other persons as may become
Shareholders from time to time in accordance with the provisions
of Section 4.2(e) (not to exceed three of such additional
Strategic Partners) provided that such other entity or
organization has a significant customer base to which the products
and/or services of the Business or any part thereof could be
marketed or such entity or organization provides products and/or
services which are within the scope of the Business or
complementary thereto, all in the opinion of the Board of
Directors, acting reasonably and in good faith having regard to
the best interests of the Corporation;
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(ddd) "STRATEGIC PARTNER DEMAND REGISTRATION" - has the meaning ascribed
to it in Section 14.1;
(eee) "SUBSIDIARY" - means an incorporated body wherever or however
incorporated (a "body corporate") that is a "SUBSIDIARY" of
another body corporate. A body corporate shall be considered a
subsidiary of another body corporate if, but only if:
(i) it is controlled (as defined in Section 1.1(c)(ii)) by:
(A) that other body corporate, or
(B) that other body corporate and one or more bodies
corporate each of which is controlled by that
other body corporate, or
(C) two or more bodies corporate each of which is
controlled by that other body corporate; or
(ii) it is a subsidiary of a body corporate that is a
subsidiary of that other body corporate;
(fff) "TIME OF CLOSING" - means the time of day agreed to in writing by
the vendor and the purchaser in the subject transaction on the
date established for completing the subject transaction in
accordance with the provisions of this Agreement; and
(ggg) "VOTING SECURITIES" - means securities, other than debt
securities, carrying a voting right to elect directors generally
either under all circumstances or under stated circumstances that
have occurred and are continuing.
1.2 CURRENCY.
Unless otherwise provided for herein, all dollar amounts referred
to or payments contemplated herein are stated in or shall be paid in Canadian
funds (as the case may be). Payments contemplated herein shall be in cash or by
certified cheque or bank draft drawn on a reputable financial institution or by
wire transfer.
1.3 INTERPRETATION.
The division of this Agreement into articles and sections is for
convenience of reference only and shall not affect the interpretation or
construction of this Agreement.
The word "including" used in this Agreement means "including
without limitation" and the word "includes" used in this Agreement means
"includes, without limitation". Expressions such as "hereof", "herein",
"hereto", "hereunder", "hereby" and similar expressions shall be construed as
referring to this Agreement in its entirety and not only to the particular
Article, Section, Subsection or clause in which such word or words appear.
Unless something in the subject matter or context is inconsistent therewith,
references herein to Articles, Sections, Subsections and clauses are to
Articles, Sections, Subsections and clauses of this Agreement.
<PAGE>
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1.4 GOVERNING LAW/SUBMISSION TO JURISDICTION.
This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the federal laws of Canada
applicable therein (excluding any conflict of laws rule or principles that
might refer such construction to the laws of another jurisdiction) and shall
be treated, in all respects, as an Ontario contract. The parties hereto
submit to the exclusive jurisdiction of the courts of the Province of
Ontario. In any such dispute, subject to the provisions of Section 4.9, the
parties shall act reasonably and in good faith with a view to having such
dispute heard by a judge of the Commercial List of the Ontario Superior Court
of Justice.
1.5 NUMBER AND GENDER.
In this Agreement, the use of the singular number shall include
the plural and vice versa, the use of gender shall include the masculine,
feminine and neuter genders.
1.6 COMPUTATION OF TIME.
When calculating the period of time within which or following
which any act is required or permitted to be done, notice given or step taken
pursuant to this Agreement, the date which is the reference date in
calculating such period shall be excluded. If the last day of such period is
a non-business day, the period in question shall end on the next following
business day.
1.7 STATUTORY REFERENCES.
Unless otherwise indicated, any references herein to any law,
by-law, rule, regulation, order or act of any government, governmental body
or other regulatory body shall be construed as a reference thereto as amended
or re-enacted from time to time or as a reference to any successor thereto
and all rules and regulations promulgated thereunder.
1.8 EFFECT ON MANAGEMENT.
To the extent that this Agreement specifies that any matters
may only be or shall solely be dealt with or approved by or shall solely
require action by the Shareholders, the discretion and powers of the
directors of the Corporation to manage and to supervise the management of the
business and affairs of the Corporation with respect to such matters are
correspondingly restricted.
1.9 RIGHTS AND OBLIGATIONS OF TRANSFEREES.
If shares of the Corporation are transferred by a Shareholder
to one or more Permitted Transferees, such transferee(s) together with the
original Shareholder (should it or he retain any Common Shares), acting
unanimously, shall be entitled to exercise all rights of such Shareholder
hereunder, subject to the direction of the original Shareholder. For greater
certainty, any provision of this Agreement referring to or contemplating
shares held by, or the number of shares held by, a Shareholder shall (without
duplication) be deemed to include a reference to shares held by, or the
aggregate number of shares held by, the particular Shareholder and the
members of its Immediate Family (or, in the case of BMO, BAC, CSTC, Sonera,
WFC, FTV1,
<PAGE>
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FTV2 or HSBC, their respective Permitted Transferees), or in the case of the
Founding Shareholder, all of its Permitted Transferees together with all of
the members of the Founding Shareholder (and, to the extent applicable, their
respective Permitted Transferees) in each case who are Shareholders, and for
further certainty such aggregation shall apply for purposes of matters
dealing with rights and obligations to vote, purchase or sell shares as
contemplated herein.
1.10 SHARE REFERENCES.
Any reference to shares of the Corporation means shares in the
capital of the Corporation, as such shares exist at the close of business on
the date of execution and delivery of this Agreement and any additional
shares of the Corporation which may hereafter be created or issued; provided
that in the event of a subdivision, redivision, reduction, combination or
consolidation of the shares of the Corporation, then a reference to shares of
the Corporation shall thereafter mean the shares resulting from such
subdivision, redivision, reduction, combination or consolidation.
1.11 SEVERABILITY.
If any Article, Section or any portion of any Section of this
Agreement is determined to be unenforceable or invalid for any reason
whatsoever, that unenforceability or invalidity shall not affect the
enforceability or validity of the remaining portions of this Agreement and
such unenforceable or invalid Article, Section or portion thereof shall be
severed from the remainder of this Agreement.
1.12 TERMINATION.
This Agreement shall terminate upon:
(a) the written agreement of each of the Founding Shareholder, the
Strategic Partners and, if such termination would reasonably be
expected to have a material adverse effect on them, the Management
Shareholders;
(b) the dissolution or bankruptcy of the Corporation or the making by
the Corporation of an assignment or the commencing of a proceeding
by the Corporation under the provisions of the BANKRUPTCY AND
INSOLVENCY ACT (Canada), the COMPANIES CREDITORS' ARRANGEMENT ACT
(Canada) or any similar legislation related to bankruptcy,
insolvency or other relief for debtors applicable in Canada,
provided that the provisions of Article 17 of this Agreement shall
survive any termination of this Agreement pursuant to this Section
1.12(b);
(c) one person becoming the beneficial owner of all of the outstanding
Common Shares and securities convertible into or exercisable for
Common Shares, provided that the provisions of Article 17 shall
survive any termination of this Agreement pursuant to this Section
1.12(c) resulting from a transaction pursuant to Article 8,
Article 10 and Article 15; or
<PAGE>
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(d) an Initial Public Offering, provided that the provisions of
Article 13, Article 14 and Article 17 of this Agreement shall
survive any termination of this Agreement pursuant to this
Section 1.12(d).
1.13 AMENDMENTS AND WAIVERS.
This Agreement may be amended with the prior consent in
writing, duly executed, of: (i) the Founding Shareholder; (ii) each of the
Strategic Partners; and (iii) if such amendment would reasonably be expected
to prejudice their rights hereunder, the Management Shareholders.
Notwithstanding the immediately preceding paragraph, this
Agreement may also be amended for the purposes of reflecting the admission of
a new Strategic Partner as a Shareholder of the Corporation (for greater
certainty, pursuant to Section 1.18 or where such admission has been duly
approved in accordance with the provisions of Sections 4.2(d)(iv) and 4.2(e)).
The settlement of the required amendments to this Agreement in
this regard shall take place in accordance with the following provisions and
shall require the written consent of those Strategic Partners and, if
applicable, the Founding Shareholder, as shall have approved the admission of
the incoming Strategic Partner, or in the case of Section 1.18, by the
Founding Shareholder together with a majority in number of the Strategic
Partners (in each case, collectively, the "Admitting Parties"), provided,
however, that any amendments to this Agreement that are not Consequential
Amendments (as defined below) shall require approval in accordance with the
first paragraph of this Section 1.13.
In this regard, amendments to this Agreement may be made: (i)
to afford the new Strategic Partner with rights and subject it to obligations
comparable in all material respects with those applicable generally to the
existing Strategic Partners; or (ii) which are consequential to the admission
of a new Strategic Partner; or (iii) to reflect then existing rights and
obligations provided specifically for the benefit for (and subject to waiver
by) a particular Strategic Partner (such as, for example, the ability to
restrict transfers and issuances of Common Shares to competitors of the
particular Strategic Partner). In addition, changes may be made at the
request of the proposed new Strategic Partner which are non-material and
which cannot reasonably be considered adverse to the interests of the
Founding Shareholder and the existing Strategic Partners. The amendments
contemplated by this paragraph are referred to, collectively, as the
"Consequential Amendments".
Any such Consequential Amendments to the Agreement shall be
prepared by the Founding Shareholder and circulated in draft to each of the
Strategic Partners for their review and comment and such parties shall work
together and use all reasonable commercial efforts, acting reasonably and in
good faith, to settle the form and substance of the amended and restated
Agreement so that the final form thereof accommodating the entry of the new
Strategic Partner can be delivered by the Founding Shareholder to each of the
Strategic Partners and, if required, to the other Shareholders (other than
Employee Shareholders) and the voting trustee for the Employee Shareholders
for their execution by no later than the 15th business day after the
circulation of the preliminary draft thereof. In the event that any such
Shareholder (other than
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those Strategic Partners who have approved the admission of such new
Strategic Partner) fails to sign and return to the Founding Shareholder the
final form of amended and restated Shareholders' Agreement by no later than
the 15th business day after the delivery thereof, then, without prejudice to
any other rights which it may have, the Admitting Parties (or their
designated representative) shall be deemed to have been irrevocably appointed
by such Shareholders which shall not have signed and returned their
Agreements as their attorney in that behalf in accordance with the POWERS OF
ATTORNEY ACT (Ontario). The parties hereto acknowledge and agree that such
power of attorney is a power coupled with an interest, given for
consideration, and cannot be revoked without the consent of the other parties
hereto. For greater certainty, the parties hereto acknowledge and agree that
such power of attorney does not apply to and is not applicable to those
Strategic Partners which approved the admission of the new Strategic Partner.
With respect to any provision of this Agreement prohibiting the
transfer or issuance of shares to a particular person in the circumstances
solely because such person is a "Competitor of BMO", a written waiver from
BMO shall be sufficient to permit the particular transaction and such waiver
shall be binding on the parties hereto. Further, if at any time none of BMO
or its Affiliates or Subsidiaries are Shareholders, all references to
"Competitor of BMO" herein shall be deleted and this Agreement shall be
deemed to have been duly amended and restated to reflect such deletions.
1.14 ACCOUNTING AND AUDITING.
Subject to the provision of Section 5.2, all accounting and
financial records of the Corporation shall be prepared in accordance with
GAAP applied consistently during the periods covered thereby. The accounting
and financial records of the Corporation shall be kept in Canada. The
Corporation also agrees to make available to any Governmental Authority
entitled thereto, including OSFI, at all times, the accounting and financial
records of the Corporation.
1.15 SHAREHOLDER REGULATORY REQUIREMENTS.
The parties hereto desire to at all times comply in all
respects with all Applicable Law, including the requirements of Applicable
Law that apply specifically to a particular Shareholder as a result of the
nature of its business or the governmental licenses or permits that it holds
to carry on such business (for greater certainty and for purposes of
illustrative example, including the Bank Act and the regulations thereunder
as well as the applicable guidelines, recommendations and directions of OSFI,
as these relate to BMO). Also, for greater certainty, the parties hereto
shall cause the Corporation to carry on primary activities consistent with an
"information services corporation" (within the meaning given to such term in
the Bank Act) until such time as the characterisation of the Corporation as
an "information services corporation" is no longer required as a prerequisite
for any Shareholder, that is subject to the Bank Act, to hold the number of
Common Shares that it holds directly or indirectly.
In the event of: (i) a change in Applicable Law or the
application thereof by the applicable Governmental Authority; or (ii) a
change in the nature or geographic extent of the Corporation's business as
then carried on or proposed to be carried on; or (iii) a change or proposed
change in the identity of one or more of the Shareholders; or (iv) such other
facts
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concerning the Corporation exist (including, without limitation, any proposed
action on the part of the Corporation), in any case such that the Founding
Shareholder, BMO, BAC, CSTC, Sonera, WFC, FTV1, FTV2 or HSBC would no longer
be permitted, pursuant to Applicable Law, to maintain all or part of their
respective shareholdings in the Corporation (directly or through their
respective Affiliates or Subsidiaries), the Corporation and the affected
Shareholder shall meet to consider whether the indicated Applicable Law would
in fact apply to the proposed course of action, to consider the impact of
such Applicable Law to the Corporation and to the affected Shareholder and to
consider whether there are any reasonable alternatives to the proposed course
of action available (and whether these can be implemented in a timely fashion
having regard to the needs of the Corporation and the affected Shareholder).
In this regard, the affected Shareholder shall be obligated to
pursue in good faith, using commercially reasonable efforts and on a timely
basis and at its sole expense, all reasonable alternatives and potential
solutions available to it, including, without limitation: (i) restructuring
the manner in which its interest in the Corporation is held; (ii) seeking to
obtain all necessary licenses, permits, consents, notices, approvals,
filings, certificates, registrations and/or authorizations of, by and/or with
any Governmental Authority necessary and/or required to be obtained by, or
issued or granted to, such Shareholder and seeking other regulatory
approvals and/or guidance; and (iii) seeking the assistance of other members
of its corporate group.
If, notwithstanding the foregoing, the affected Shareholder
determines, acting reasonably and in good faith and otherwise in accordance
with this Section 1.15, that the action in question cannot be implemented in
a manner that results in the affected Shareholder remaining in compliance
with Applicable Law, then the Corporation shall not pursue the action in
question unless and until the required regulatory approval is obtained or the
action can otherwise be implemented in accordance with the requirements of
Applicable Law.
In this regard, the parties hereto covenant and agree to act in
good faith in attempting to find a mutually acceptable solution (including,
if applicable, making such additions or changes to the rights and obligations
of the parties pursuant to this Agreement as shall result in an equitable
treatment of all parties having regard to their relative rights and
obligations as of the date hereof).
Each Shareholder shall be solely responsible for monitoring
legal developments specifically applicable to the operation of its business,
interpreting Applicable Law, determining the requirements for compliance with
such Applicable Law and identifying changes thereto. Further, each
Shareholder covenants and agrees to respond, on a timely basis having regard
to the Corporation's needs, to inquiries from the Corporation as to the
ability of the Corporation to pursue a specified action in light of the
requirements of Applicable Law as it relates to the particular Shareholder.
In this regard such Shareholders shall, upon request by the Corporation,
provide the Corporation with designated contact officers who possess or have
direct access to the expertise and internal authority required for the
purposes of this Section 1.15.
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1.16 REFERENCES TO AGREEMENTS.
Unless otherwise indicated, all references herein to any
agreement or instrument mean such agreement or instrument as amended,
modified, varied, restated or replaced from time to time with the written
agreement of the parties thereto.
1.17 SPECIAL PROVISIONS RELATING TO THE FOUNDING SHAREHOLDER
(a) EFFECT OF TERMINATION OF EMPLOYMENT OF GREG WOLFOND.
Notwithstanding anything to the contrary in this Agreement, if
the Strategic Partners elect to approve of Material Decision
1.1(mm)(x), or if the employment of Greg Wolfond as Chairman
and Chief Executive Officer of the Corporation terminates as a
result of his voluntary resignation or his death or otherwise,
then the following provisions shall apply to the unique rights
held by the Founding Shareholder:
(i) the Founding Shareholder shall be entitled to nominate
a member of the Board of Directors in accordance with
Section 4.2(a)(i)(A)(1), until the Founding Shareholder
has disposed of all of its Common Shares;
(ii) the Founding Shareholder shall CEASE to be entitled to
nominate members of the Board of Directors in
accordance with Section 4.2(a)(i)(C), and thereafter
the Shareholders shall appoint such directors by a
majority vote, provided that such directors shall be
Independent Directors;
(iii) Greg Wolfond shall CEASE to be entitled to exercise his
authority to select the senior management team of the
Corporation and its Subsidiaries and Affiliates, to set
their compensation, or to be included in and to
designate any member of the Compensation Committee, in
each case as contemplated by and in accordance with
Section 5.1; and thereafter, the Board of Directors
shall have all such authority;
(iv) The Founding Shareholder shall CEASE to be entitled to
select candidates for nomination as Independent
Directors pursuant to Section 4.2(a)(i)(B), instead the
candidates for nomination as Independent Directors
shall be selected by a majority of the Strategic
Partners;
(v) Category 3 Material Decisions shall no longer be
subject to the approval mechanism set out in Section
4.2(d)(iii), and thereafter, such Material Decisions
shall be implemented with the approval by majority vote
at a duly convened meeting of the Board of Directors
and the written consent of Shareholders holding more
than 50% of the issued and outstanding Common Shares,
subject to proviso (B) of the last sentence of such
Section 4.2(d)(iii), which shall remain applicable;
(vi) any reference to the Founding Shareholder in Section
4.2(e)(i) (bringing in a new Strategic Partner) shall
be replaced by a reference to the Board of Directors;
and
<PAGE>
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(vii) as provided in Section 15.4 ("Termination of Employment
of Greg Wolfond"), there shall be no restriction on the
time before which the Founding Shareholder may pursue
the sale of its shares, and there shall be no "drag
along rights" for the Founding Shareholder or "tag
along rights" for the benefit of the other Shareholders
(pursuant to Article 8 or Article 10).
All other rights hereunder of the Founding Shareholder and Greg
Wolfond personally, including, without limitation: (a) the
Founding Shareholder's right to vote the Common Shares held by
Employee Shareholders; (b) the Founding Shareholder's right to
pledge, transfer or otherwise deal with its Common Shares; and
(c) the Founding Shareholder's rights as a Shareholder,
including its pre-emptive rights and registration rights, shall
remain unchanged.
(b) FOUNDING SHAREHOLDER HOLDS LESS THAN 800,000 COMMON SHARES.
Notwithstanding anything to the contrary in this Agreement, in
the event that the Founding Shareholder and each Permitted
Transferee thereof, ceases to hold at least 800,000 equity
shares of the Corporation:
(i) the right of the Founding Shareholder to vote the
Common Shares of the Employee Shareholders provided for
in Section 4.7 shall be terminated and each Shareholder
shall be entitled to vote the shares registered in
his/her name; and
(ii) the Agreement shall be deemed to have been amended to
provide that the amendments contemplated in Paragraph
1.17(a)(v) shall also apply.
(c) FOUNDING SHAREHOLDER NO LONGER HOLDS ANY COMMON SHARES.
Notwithstanding anything to the contrary in this Agreement, in
the event that the Founding Shareholder and each Permitted
Transferee thereof, ceases to hold any equity securities of the
Corporation, all of the provisions hereof conferring unique
rights upon the Founding Shareholder and/or Greg Wolfond
personally, shall be deemed to be amended to delete such rights
and any reference to the Founding Shareholder. However, for
greater certainty, any rights that have accrued in favour of
the Founding Shareholder or Greg Wolfond immediately prior to
or upon such final disposition (for example, rights to
reimbursement of expenses and rights to indemnification) and
any rights in respect of a breach or non-compliance with the
provisions hereof shall continue in favour of the Founding
Shareholder and Greg Wolfond. In replacement for such Founding
Shareholder powers, the Agreement shall be deemed to have been
amended to provide that the amendments contemplated in
Paragraph 1.17(a) shall also apply.
1.18 SPECIAL PROVISIONS RELATING TO THE RIGHTS ATTACHING TO THE COMMON
SHARES SOLD BY THE FOUNDING SHAREHOLDER
In the event that the Founding Shareholder sells any of the equity
securities of the Corporation to a Person (including, for greater certainty, a
Strategic Partner) that is not a member of the Founding Shareholder (the
"Purchaser"), no unique rights of the Founding Shareholder, as
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provided in this Agreement, shall be conferred upon such Purchaser, except
that the Founding Shareholder shall be entitled to assign its registration
rights relating to the shares of the Corporation being sold (without
prejudice to the registration rights attaching to the shares that the
Founding Shareholder continues to hold), provided, however, that the Founding
Shareholder Demand Registration rights may only be assigned in whole, and not
in part, and the Founding Shareholder shall not retain any part of the
Founding Shareholder Demand Registration rights once they have been assigned.
The Purchaser shall, for the purposes hereof, be deemed to be,
and shall otherwise be treated as, a Strategic Partner if it acquires at
least 5% of the issued and outstanding Common Shares in the transaction or
series of related transactions pursuant to which such Purchaser first becomes
a Shareholder (inclusive of all of the Common Shares acquired from other
Shareholders). For greater certainty, the Purchaser shall be treated as a
new Strategic Partner for purposes of any right to nominate a director of the
Corporation as such right exists on the date of the acquisition which makes
the Purchaser a new Strategic Partner (I.E. as at August 2, 1999, the
Purchaser shall be entitled to appoint a nominee to the Board of Directors if
it holds no less than 10% of the issued and outstanding Common Shares). If
the Purchaser does not acquire at least 5% of the issued and outstanding
Common Shares, as contemplated above, then the Purchaser shall, for the
purposes hereof, be treated as if it is a Management Shareholder.
1.19 SPECIAL PROVISIONS RELATING TO FTV
(a) The parties hereto acknowledge and agree that for all purposes
herein, FTV1 and FTV2 shall, collectively, be considered to be
a single Strategic Partner and shall be jointly and severally
liable for their compliance with the terms hereof.
(b) For purposes of simplifying the administration of the
Corporation and to enable the other Shareholders to deal with
FTV1 and FTV2 collectively with respect to those provisions
hereof contemplating or allowing for the approval, consent,
waiver or other exercise of rights by FTV as a Strategic
Partner, or by FTV1 or FTV2 in its capacity as a Shareholder or
for purposes of the delivery of Notices to or by FTV (or either
of FTV1 or FTV2):
(i) each of FTV1 and FTV2 hereby appoints Financial
Technology Management, L.L.C. as its voting trustee in
respect of all of the Common Shares (the "Subject
Shares") which are now owned by either FTV1 or FTV2 or
are acquired by either of them from time to time
hereafter. Financial Technology Management, L.L.C.
shall be entitled, by its authorized representative,
proxy or attorney to exercise all voting rights
pertaining to the Subject Shares and to otherwise
represent FTV (including the members thereof) in
connection with initiating, taking part and consenting
to any action of the Corporation or other matter
concerning the Subject Shares contemplated hereunder or
any matter for which the waiver, consent, approval or
other action on the part of FTV (including any member
thereof) is required or permitted or otherwise
contemplated herein and shall be entitled, in its sole
and unfettered discretion, to make all decisions
relating to the business and affairs of the Corporation
and to
<PAGE>
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communicate to the other Shareholders its' decisions
on behalf of FTV (including any member thereof);
(ii) the Shareholders, other than FTV1 and FTV2, may rely
on, and accept any decisions and/or instructions
communicated verbally or in any other manner whatsoever
by Financial Technology Management, L.L.C. on behalf of
FTV, without further inquiry with FTV1 and FTV2;
(iii) in furtherance of the foregoing, FTV1 and FTV2 shall
from time to time and at all times during the term of
this Agreement (including upon a replacement of their
voting trustee as contemplated by Section 1.19(b)(iv))
put in place voting trusts and other arrangements as
shall be reasonably requested by the Corporation,
including the execution and delivery of appropriate
instruments of proxy or powers of attorney, to enable
or facilitate the exercise of any and all such powers
given to the Financial Technology Management, L.L.C.
under this Section 1.19 or otherwise for purposes of
enabling the collective administration of the aggregate
shareholding of FTV with respect to the Corporation, as
contemplated herein; and
(iv) FTV1 and FTV2 may collectively designate by notice in
writing to the other Shareholders and the Corporation a
replacement for Financial Technology Management, L.L.C.
as its voting trustee and the other Shareholders and
the Corporation shall be entitled to rely upon and
accept any decisions and/or instructions communicated
verbally or in any other manner whatsoever by such
replacement (at any time after the effective date of
such notice).
For purposes of any provision herein pursuant to which FTV is offered the right
or is subjected to the obligation to subscribe for shares or other securities of
the Corporation, the following provisions shall be applicable:
(i) unless otherwise allocated among FTV1 and FTV2 by
agreement between them prior to the time fixed for
closing, they shall purchase and the Corporation shall
issue or the Shareholder in question shall sell to FTV1
and FTV2, such shares or other securities at the
relevant time in the ratio of 27.0122 to one; and
(ii) for purposes of any provision of this Agreement
referring to the number of shares or other securities
of the Corporation held by FTV, the respective holdings
of FTV1 and FTV2 (together with the holdings of their
respective Permitted Transferees) shall be aggregated
for purposes of such reference.
Notwithstanding anything to the contrary contained in this Agreement, all
notices, consents, waivers, communications or other documents or instruments
required or permitted by the terms hereof to be given by the Corporation or
any other Shareholder to FTV1 and/or FTV2 shall be deemed to be properly
given and binding on them if the Notice is given to Financial Technology
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Management, L.L.C. (or any replacement voting trustee, as applicable) in
accordance with Section 19.2. Any Notice to be given by one or more of FTV1
and FTV2 to the Corporation or to one or more of the other Shareholders shall
be deemed to be properly given and binding on such Shareholder if the Notice
is given by Financial Technology Management, L.L.C. on behalf of such
Shareholder in accordance with Section 19.2.
1.20 SPECIAL PROVISIONS RELATING TO THE HSBC WARRANT
(a) For the purposes of Article 6 (Restrictions on Transfers of
Shares) and Article 7 (Restrictions on Indirect Transfers of the
Corporation), any reference to HSBC's shares or securities of the
Corporation shall be deemed to include the HSBC Warrant or the
Common Shares issuable under the HSBC Warrant.
(b) For the purposes of those provisions in this Agreement not
contained in Article 6 and Article 7, any reference to HSBC's
shares or securities of the Corporation shall be deemed not to
include the HSBC Warrant or the Common Shares issuable under the
HSBC Warrant unless and until the HSBC Warrant has been exercised
and the underlying Common Shares thereunder have been issued to
HSBC.
(c) Notwithstanding any of the provisions of the HSBC Warrant, the
parties hereto covenant and agree that any waiver of any term or
provision of the HSBC Warrant or any amendment, supplement or
other modification of or to the HSBC Warrant, shall only be made
with the prior written consent of the Corporation and all of the
Strategic Partners together with the Founding Shareholder and
until such written consent is obtained, any such waiver,
amendment, supplement or other modification shall be of no force
or effect. Notwithstanding the general provisions of this Section
1.20(c), the decision to extend the term of the HSBC Warrant shall
be a Category 3 Material Decision provided that: (i) if such term
extends or could extend (including as a result of subsequent
events) beyond the date which is 10 business days prior to the
time or period in or under which BMO has the entitlement, or is
entitled, to exercise its rights pursuant to Section 11.5 hereof
(Special Provisions Relating to BMO's Pre-Emptive Right), then any
such extension shall, in addition, require the implementation of
binding contractual arrangements in favour of BMO which protect
and maintain BMO's rights pursuant to Section 11.5 that would or
could be prejudiced by such extension; and (ii) if such term
extends beyond March 31, 2000 then any such extension shall
require the prior written consent of the Founding Shareholder and
all Strategic Partners. Any such extension shall not be effective
and shall have no force or effect until such required arrangements
are entered into or consent is obtained. The Corporation
covenants and agrees that following the exercise of HSBC's rights
under the HSBC Warrant, it shall give written notice in this
regard forthwith to BMO.
<PAGE>
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ARTICLE 2
TERMINATION OF PRIOR AGREEMENTS
2.1 AMENDMENT AND RESTATEMENT OF OCTOBER 19, 1999 UNANIMOUS
SHAREHOLDERS' AGREEMENT/TERMINATION OF PRIOR AGREEMENTS.
This Agreement amends and restates the October 19, 1999
Unanimous Shareholders' Agreement. All prior agreements among some or all of
the parties hereto regarding the organization and affairs of the Corporation
and/or the sale of any Shareholder's Common Shares or securities of the
Corporation under certain circumstances, whether written or oral, are hereby
terminated including, without limitation, the letter of intent between the
Corporation, Blue Sky and BMO dated March 9, 1998, the letter of intent
between the Corporation and Bank of America National Trust & Savings
Association dated December 21, 1998, the Confidential Term Sheet among the
Corporation, CSTC and Sonera dated June 24, 1999, the Confidential Term Sheet
between the corporation and an Affiliate of WFC dated September 28, 1999, as
well as the April 1998 Unanimous Shareholders' Agreement.
ARTICLE 3
WARRANTIES
3.1 SHAREHOLDERS.
Each Shareholder warrants that, as at the date hereof, and
acknowledges that the other Shareholders are relying upon such warranties in
entering into this Agreement:
(a) such Shareholder is the registered and beneficial owner of that
number of issued and outstanding Common Shares or securities
representing the right to acquire Common Shares as set out in
Appendix "A" to this Agreement;
(b) except as provided in this Agreement, the Common Shares legally
and beneficially owned by such Shareholder are free and clear
of all claims, liens, security interests and encumbrances
whatsoever and, except as provided pursuant to the Stock Option
Plan and, except as provided in this Agreement (including
Appendix "A" hereto), such Shareholder has not entered into, or
become bound by, any other agreement or option or right capable
of becoming an agreement for the purchase of any shares;
(c) except for BAC, CSTC, Sonera, WFC, FTV and HSBC such
Shareholder is not a non-Canadian within the meaning of the
INVESTMENT CANADA ACT (Canada); and
(d) except for BAC, CSTC, Sonera, WFC, FTV and HSBC such
Shareholder is not a non-resident of Canada within the meaning
of the INCOME TAX ACT (Canada).
Each Shareholder covenants and agrees that if, in connection
with the business of the Corporation, or in connection with a share
transaction permitted by this Agreement, the Corporation or a Shareholder,
acting reasonably, so requests, the Shareholders will deliver written updates
of such representations (including with respect to BAC, CSTC, Sonera, WFC,
FTV and HSBC as to their status under the INVESTMENT CANADA ACT, or any other
statute).
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Citicorp hereby represents and warrants and acknowledges that
the other Shareholders are relying upon such representation and warranty in
entering into this Agreement, that as at the date hereof CSTC is an indirect
wholly-owned Subsidiary and that Citicorp is contracting herein: (I) as the
Principal of CSTC (and as the Principal of any other Affiliate of Subsidiary
of Citicorp or CSTC to which shares of the Corporation may subsequently be
issued or transferred); and (II) for the purposes contemplated in Article 18.
3.2 SHAREHOLDERS WHICH ARE CORPORATE OR OTHER ENTITIES.
Each Shareholder which is not an individual further warrants
that, at the date hereof, and acknowledges that the other Shareholders are
relying upon such warranties in entering into this Agreement:
(a) such Shareholder is a corporation duly incorporated, or
partnership or other entity duly formed, and in any case
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do
business and is in good standing in each jurisdiction in which
it carries on business;
(b) such Shareholder has all necessary power, authority and
approval to enter into this Agreement and to perform its
obligations hereunder;
(c) all necessary action has been taken by such Shareholder to
authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder, and this Agreement
has been duly executed and delivered by such Shareholder and
constitutes a legal, valid and binding obligation of such
Shareholder enforceable against it in accordance with its
terms; and
(d) neither the execution and delivery of this Agreement by such
Shareholder, nor the performance of its obligations hereunder,
will conflict with or result in the violation, contravention or
breach of, or any default under, any of the terms or provisions
of the constating documents or by-laws of such Shareholder or
of any agreement, obligation, contract, commitment, law or
regulation to which such Shareholder is a party or by which it
is bound.
3.3 THE CORPORATION.
The Corporation warrants and acknowledges that the Shareholders
are relying upon such warranties in entering into this Agreement that, as at
the date hereof:
(a) the Common Shares and other securities of the Corporation
listed in Appendix "A" hereto are the only issued and
outstanding Common Shares or securities of the Corporation;
(b) except for the Options and except as otherwise provided in this
Agreement or the HSBC Warrant no person has any agreement or
option or right capable of becoming an agreement for the
purchase, subscription or issuance of any of the unissued
Common Shares or any other securities of the Corporation;
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(c) the Corporation has all necessary corporate power, authority
and approval to enter into this Agreement and to perform its
obligations hereunder;
(d) all necessary corporate action has been taken by the
Corporation to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder and
this Agreement has been duly executed and delivered by the
Corporation and constitutes a legal, valid and binding
obligation of the Corporation enforceable against it in
accordance with its terms; and
(e) neither the execution and delivery of this Agreement by the
Corporation, nor the performance of its obligations hereunder,
will conflict with or result in the violation, contravention or
breach of, or any default under, any of the terms or provisions
of the constating documents or by-laws of the Corporation or of
any agreement, obligation, contract, commitment, law or
regulation to which the Corporation is a party or by which it
is bound.
3.4 QUALIFICATION OF REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made by a party hereto as to the
enforceability of any agreement against such party is subject to the following
qualifications:
(a) specific performance, injunction and other equitable remedies
are discretionary and, in particular, may not be available
where damages are considered an adequate remedy; and
(b) enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other laws
generally affecting enforceability of creditors' rights.
ARTICLE 4
PROVISIONS FOR CONTROL
4.1 UNANIMOUS SHAREHOLDERS' AGREEMENT.
It is the intention of the Shareholders that this Agreement
operate, constitute and be construed as a "unanimous shareholders' agreement"
for purposes of the Act, and the Shareholders agree that they shall be
accorded, and be subject to, all rights and obligations attendant upon
entering into such a "unanimous shareholders' agreement". Each of the
Shareholders agrees to vote and act at all times as a shareholder of the
Corporation, and in all respects to use its best efforts to take all such
steps as may be reasonably within its power so as to cause the Corporation to
act, in the manner contemplated by the provisions of this Agreement and to
implement, to their full extent, the provisions of this Agreement and, to the
extent permitted by Applicable Law, to cause its respective nominees as a
director of the Corporation to so act. Each party hereby acknowledges that
all acts taken by any director of the Corporation which accords with the
intent of this Agreement shall be considered by the parties hereto to be acts
undertaken in the best interests of the Corporation.
<PAGE>
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4.2 CORPORATE GOVERNANCE MATTERS.
The Shareholders shall cause such meetings of the Corporation
to be held, votes cast, resolutions passed, by-laws enacted, documents
executed and all things and acts done to ensure the following continuing
arrangements with respect to the operation and control of the Corporation:
(a) (i) Prior to an Initial Public Offering, the affairs of the
Corporation shall be managed by a Board of Directors
(the size of which is currently 11, but is subject to
change in the circumstances described in Section
1.1(mm)(vii), and otherwise in accordance with the
provisions of Section 4.2(d)(ii)) which shall at all
times consist of:
(A) One nominee of each of:
(1) subject to the provisions of Section 1.17,
the Founding Shareholder (regardless of the
level of its shareholdings in the
Corporation),
(2) those of the Strategic Partners as at August
2, 1999 which hold at the relevant time at
least 4% of the issued and outstanding Common
Shares, or 3% for those Strategic Partners as
at August 2, 1999 who have never sold or
otherwise disposed of any Common Shares
(other than to a Permitted Transferee), and
(3) those of the Strategic Partners which became
or become Strategic Partners after August 2,
1999 and which hold at the relevant time at
least 10% of the issued and outstanding
Common Shares;
(B) two directors selected by a majority of the
Strategic Partners from a list of five potential
candidates proposed in good faith by the
Founding Shareholder on the basis that they
would be Independent Directors; and
(C) the balance of the number of directors from time
to time shall be selected by the Founding
Shareholder from members of the Management Team.
For greater certainty, all of the Shareholders covenant
and agree to vote their shares of the Corporation for the
election of the nominees of each of the Strategic
Partners and the Founding Shareholder as contemplated
above.
(ii) Should any vacancy occur on the Board of Directors, the
Shareholders shall be given prompt notice of such event
by the General Counsel of the Corporation, in
accordance with the notice provisions herein, and such
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vacancy shall be filled forthwith by the appointment of
a nominee or nominees by the Shareholder(s) who shall
have appointed the former director who was not
re-elected or whose resignation or removal caused the
vacancy. Until such vacancy is filled, the Board of
Directors shall not transact any business or exercise
any of its powers or functions, save and except as may
be necessary to appoint such new director(s) and/or
preserve the business and assets of the Corporation.
Provided that if a replacement director is not
appointed as aforesaid within 15 days of the date of
the General Counsel's notice of such vacancy occurring,
thereafter the directors then in office shall be
entitled to transact business and exercise all of the
powers and functions of the Board of Directors and,
further, for the purposes of this Agreement, the
unanimous decision of the directors then in office
shall constitute the unanimous decision of all of the
directors of the Corporation until such time as the
replacement director(s) is properly appointed and a
decision of a majority (or specified supermajority) of
the directors then in office shall constitute a
majority (or specified supermajority) decision of all
of the directors of the Corporation until such time as
the replacement director(s) is properly appointed.
(iii) For greater certainty and notwithstanding any provision
of the By-laws of the Corporation to the contrary, no
director or directors who are nominees of a Strategic
Partner or of the Founding Shareholder, as the case may
be (as provided in Section 4.2(a)(i)), may be removed
from the Board of Directors except in compliance the
provisions of Section 4.2(a)(i) or, if otherwise, with
the consent of the Shareholder(s) which shall have so
nominated them. Shareholder(s) shall replace the
nominee(s) they are entitled to appoint if such
nominees are no longer eligible to serve as a director
pursuant to the Act or other Applicable Law. Provided,
however, that if a Shareholder shall cease to be
entitled to appoint one or more nominees who are then
members of the Board of Directors, it shall forthwith
cause the resignation or removal of such nominee(s) to
which it is no longer entitled.
(iv) The Corporation shall at all times comply with Section
118(3) of the Act, to the extent that such section is
applicable to the Corporation, which requires that a
majority of the directors of the Corporation shall be
resident Canadians; and in furtherance thereof, each of
the Founding Shareholder and BMO agrees that its
nominee on the Board of Directors shall at all times be
a resident Canadian. In the event that any of such
nominees is no longer a resident Canadian, then the
Founding Shareholder or BMO, as the case may be, shall
forthwith cause its nominee on the Board of Directors
to resign and nominate a director who is a resident
Canadian. If the Founding Shareholder or BMO, as the
case may be, does not appoint a resident Canadian as a
replacement nominee director within 15 business days,
the Shareholders shall be entitled to temporarily
appoint a resident Canadian director, from a list of
nominees tabled by the Founding Shareholder, until such
time as the Founding Shareholder or BMO, as the
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case may be, nominates a resident Canadian as its
representative on the Board of Directors and the
Shareholders appoint such nominee to the Board of
Directors.
(b) The officers of the Corporation, until changed in accordance
with Section 5.1, shall be:
Chairman of the Board and Gregory Wolfond
Chief Executive Officer
President, General Counsel Christopher Erickson
and Secretary
Chief Operating Officer & Kerry McLellan
Executive Vice-President,
Strategy
Chief Technology Officer Andre Boysen
Chief Financial Officer Karen Basian
and such additional officers as Greg Wolfond may determine from
time to time in accordance with Section 5.1. Notwithstanding
the foregoing, if an above-named officer resigns his office, a
replacement shall be named in accordance with Section 5.1.
(c) A quorum for meetings of the Board of Directors shall consist
of 75% of the members of the Board. In the event that a quorum
is not present at the time appointed for a meeting, or within
such reasonable time thereafter as the directors present may
determine, the meeting shall be adjourned to a fixed time and
place (provided that at least 48 hours' notice (excluding
Saturdays, Sundays and holidays) is given to all of the
directors), and no further business shall be conducted at the
adjourned meeting. At the reconvened meeting, the quorum shall
be a majority of the number of directors.
(d) Subject to the provisions of Section 1.15 hereof, the
implementation of any matter that constitutes a Material
Decision shall require the following approvals. For greater
certainty, a proposed decision, action or transaction which
constitutes (or parts of which constitute) a Material Decision
for which more than one approval requirement is specified shall
be governed by the more rigorous approval requirement; and a
matter specifically authorized in a duly approved
budget/business plan that, when implemented, would otherwise
have constituted an additional Category 3 Material Decision,
need not be re-approved:
(i) for a CATEGORY 1 MATERIAL DECISION, (in each case, even
if the matter is contemplated in an approved budget or
business plan), approval by majority vote at a duly
convened meeting of the Board of Directors and the
written consent of Shareholders holding at least 90% of
the issued and outstanding Common Shares of the
Corporation;
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(ii) for CATEGORY 2 MATERIAL DECISIONS, (in each case, even
if the matter is contemplated in an approved budget or
business plan), approval by majority vote at a duly
convened meeting of the Board of Directors and the
written consent of Shareholders holding at least 66
2/3rd% of the issued and outstanding Common Shares,
PROVIDED THAT:
(A) any Material Decision described in Section
1.1(mm)(ix) that is approved in accordance with
this paragraph must also require that the
proposed sale price of the relevant asset was no
less than the price determined by an independent
valuation performed by a valuator selected by
the Board of Directors;
(B) the Material Decision described in Section
1.1(mm)(x) that is approved in accordance with
this paragraph would trigger the events and
rights described in Section 15.4; and
(C) the vote of a Strategic Partner which would,
directly or indirectly, (including through its
Affiliates and Associates) be the recipient of
the license contemplated in Section 1.1(mm)(xii)
shall not be counted for purposes of determining
whether the required approval of that matter has
been obtained;
(iii) for CATEGORY 3 MATERIAL DECISIONS, approval by majority
vote at a duly convened meeting of the Board of
Directors and the written consent of Shareholders
holding: (A) more than 50% of the issued and
outstanding Common Shares (provided that the Founding
Shareholder has voted its shares as part of such
majority); or (B) 66 2/3rd% of the issued and
outstanding Common Shares (if the Founding Shareholder
has not voted its shares as part of such special
majority). If the Founding Shareholder does not vote
in favour of the proposed Material Decision, but the
written consent of Shareholders holding more than 50%
but less than 66 2/3rd% of the issued and outstanding
Common Shares has been obtained, then the following
procedure will be implemented: (A) a special committee
of the Board of Directors of the Corporation (the
"Special Committee") consisting of one of the directors
appointed to the Board of Directors by the Founding
Shareholder, the nominees on the Board of Directors
appointed by the Strategic Partners, together with the
Independent Directors, will be formed; (B) the Special
Committee will consider the merits of the proposed
Material Decision; and (C) if a majority of the members
of the Special Committee vote to approve the proposed
Material Decision, then the Material Decision will be
implemented, notwithstanding the objection of the
Founding Shareholder. Conversely, if less than a
majority of the members of the Special Committee vote
in favour of the proposed Material Decision, then the
proposed Material Decision will not be implemented.
NOTWITHSTANDING THE FOREGOING:
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(A) subject to the provisions of Article 15, if the
proposed decision is that contemplated by Section
1.1(mm)(xxiii) (an Initial Public Offering), then
it shall be required that the Founding Shareholder
be part of the requisite majority; and
(B) the approval of a Material Decision described in
1.1(mm)(xv) (access platforms) shall require that
at least one Strategic Partner that is a financial
institution votes in favour of such Material
Decision; and
(iv) for a CATEGORY 4 MATERIAL DECISION, approval by a
majority vote at a duly convened meeting of the Board of
Directors and the written consent of Shareholders holding
at least 71% of the issued and outstanding Common Shares.
The Founding Shareholder and each of the Strategic Partners
covenants and agrees that if its consent (or a waiver of its
rights herein) is requested, it will act without undue delay.
Each of the Strategic Partners further covenants and agrees that
any Permitted Transferee of its shares of the Corporation shall
not bind its discretion with respect to the voting of its shares
of the Corporation (or with respect to requests for consents and
waivers by the Corporation) in favour of any third party
(including, in particular, such third parties as may hold an
interest in Permitted Transferees not wholly-owned (directly or
indirectly) by the Strategic Partners, as the case may be).
(e) The issuance of Common Shares or securities convertible into or
exchangeable for Common Shares or any equity securities or any
securities carrying rights, options or warrants to acquire such
securities or Common Shares (except pursuant to the Stock Option
Plan) shall require the following approvals and be subject to the
following terms:
(i) If the proposed subscriber for such proposed issuance is
a new Strategic Partner, the necessary approvals shall
have been obtained in accordance with Section 4.2(d)(iv)
and the provisions of Article 11 hereof (Pre-emptive
Rights) shall not be applicable (with the exception of
Sections 11.5, 11.6 and 11.7, to the extent applicable in
the circumstances). The Founding Shareholder shall be
entitled to commence discussions with potential Strategic
Partners on a preliminary basis in order to ascertain
their interest in and the relative merits of, subscribing
for an interest in the Corporation as a Strategic
Partner. The Founding Shareholder shall, at the earliest
moment practicable in the circumstances (bearing in mind
the disruption to the Strategic Partners of premature
discussions with them, on the one hand, and the needs of
the Corporation to maintain confidentiality and avoid
creating expectations on the part of the potential
Strategic Partner which might not meet with the approval
of the then existing Strategic Partners, on the other
hand) make a formal presentation to the Board of
Directors concerning the proposed transaction
<PAGE>
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and, in particular, the reasons why the proposed
Shareholder meets the definition of "Strategic Partner"
herein and the relative advantages and disadvantages of
accepting such investor as a Strategic Partner. After
approval of the proposed transaction by the Board of
Directors, the Founding Shareholder shall have a
reasonable period of time during which to attempt to
garner the required support. If the required written
approvals are not obtained within 120 days of the Board
of Directors' approval, any such transaction must be
resubmitted to the Board of Directors for discussion
and re-approval. The proposed new Strategic Partner
shall be required to enter into this Agreement on
substantially the same terms as are applicable to the
then existing Strategic Partners and the preparation,
settlement and execution of the amended and restated
Agreement reflecting such new Strategic Partner shall
be conducted in accordance with the procedures set out
in Section 1.13 hereof; and
(ii) If the proposed issuance is to any person other than a
new Strategic Partner, such securities to be offered
shall (unless the transaction is specified to be exempt
from the application of Sections 11.1, 11.2, and 11.3
pursuant to Section 11.4) first be offered to the
Founding Shareholder together with the then existing
Strategic Partners on a PRO RATA basis in accordance
with the provisions of Article 11. If the amount of
capital desired to be raised by the Board of Directors
has not been fully subscribed for by the Founding
Shareholder and the then existing Strategic Partners
(or any combination thereof) in accordance with the
preceding sentence: (I) the subscribing Shareholders
shall be offered the ability to subscribe for
additional securities on the same terms (PRO RATA to
their respective ownership of equity securities of the
Corporation immediately prior to the proposed
issuance), in one or more rounds as required until the
Corporation's capital requirement is satisfied or the
subscribing Shareholders are unwilling to subscribe for
additional equity; and (II) then, and only then, will
the Corporation be permitted to issue securities to the
proposed third party subscriber (provided that the
Corporation complies with the provisions of the second
paragraph of Section 11.2 hereof, which shall be deemed
to apply MUTATIS MUTANDIS), and then only to the extent
of the balance of the funds required. Further, if the
combined effect of any such share issuances results in
the circumstances contemplated by Sections 11.5, 11.6
or 11.7, additional issuances of Common Shares shall be
made to BMO and/or BAC and/or CSTC and/or Sonera and/or
the Founding Shareholder, as the case may be, pursuant
to and in accordance with the provisions of such
Sections.
(f) So long as at least one Strategic Partner is a Shareholder, the
external accountants of the Corporation shall be any of one of the
following accounting firms recognised as KPMG Inc.,
PricewaterhouseCoopers, Arthur Andersen, Deloitte & Touche or
Ernst & Young, or any successor thereto.
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(g) Notwithstanding any by-law, resolution, determination, statutory
rule or rule of procedure to the contrary, the chairman at any
meeting of the Board of Directors or at any meeting of the
Shareholders shall not be entitled to a second, extra or casting
vote in the case of a tie vote at any such meeting.
(h) Notwithstanding any provision to the contrary in the Constating
Documents of the Corporation, any or all of the directors or
Shareholders may participate in meetings of the Board of
Directors, of a committee of the Board of Directors, or of the
Shareholders by means of such telephone, electronic or other
communication facilities as permit all persons participating in
the meeting to communicate with each other, simultaneously and
instantaneously, and any director, committee member or
Shareholder participating in such meeting by such means is
deemed to be present at the meeting (except to the extent that
the particular individual is participating by means of such
telephone, electronic or other communication facilities solely
for the purpose of objecting to the meeting being held on the
basis that it has not been properly convened). The
Shareholders shall, if requested by the Corporation, provide
written proxies and arrange for a physical quorum to be present
at a particular location, and/or circulate for execution
written resolutions, if required for the business conducted at
the meeting to comply with the Act or other Applicable Law.
(i) No director who attends a meeting of the Board of Directors by
means of such telephone, electronic or other communication
facilities shall be permitted to, directly or indirectly,
record, transcribe or otherwise reproduce or store such
proceedings by any electronic or other means without the
express, prior consent of all of the other directors attending
such meeting, nor shall such director by any act or omission
permit any other person to make such record, and any director
who participates in the making of any such recording shall be
deemed not to have acted honestly and in good faith with a view
to the best interests of the Corporation. The provisions of
this Section 4.2(i) shall apply MUTATIS MUTANDIS to meetings of
the Shareholders.
(j) The By-laws of the Corporation shall provide for written notice
to be delivered to each member of the Board of Directors: (a)
not less than ten business days before the time the meeting is
to be held if the notice is mailed; or (b) not less than seven
days before the time the meeting is to be held if the notice is
given personally or is delivered or is sent by any means of
transmitted or recorded communication, unless such notice is
waived by the directors. The Board of Directors shall hold
regularly scheduled meetings at the head office of the
Corporation at least quarterly, for which advance written
notice shall be required.
(k) Independent Directors, directors that are members of the
Management Team, and the nominee director of the Founding
Shareholder shall be entitled to be reimbursed by the Corporation
for their reasonable expenses incurred in attending meetings of
the Board of Directors or committees of the Board of Directors
(including travel, telephone, video conference and related
expenses).
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(l) The Board of Directors may from time to time resolve to pay
reasonable directors' fees, however only to Independent
Directors.
(m) The parties hereto acknowledge and agree that Common Shares or
other equity or voting securities acquired pursuant to the
exercise of Options granted under the Stock Option Plan
(including for greater certainty any approved supplemental
incentive compensation plan) shall be registered in the name of
the Designated Representative (within the meaning given to such
term in the Stock Option Plan) and held for safekeeping on his
behalf by the Corporation's counsel, all as contemplated by the
Stock Option Plan and, if applicable, any voting and deposit
agreement entered into in connection therewith. Further, such
Common Shares held on behalf of Employee Shareholders shall be
subject to the provisions of Section 4.7 of this Agreement.
4.3 LIMITATIONS ON LIABILITY/SHAREHOLDER PERSONAL INTEREST.
No director or officer shall be liable for the acts, receipts,
neglects or defaults of any other director, officer, employee, or agent, or for
joining in any receipt or other act for conformity, or for any loss, damage or
expense happening to the Corporation through the insufficiency or deficiency of
title to any property acquired for or on behalf of the Corporation, or for the
insufficiency or deficiency of any security in or upon which any of the moneys
of the Corporation shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any of the
moneys, securities or effects of the Corporation shall be deposited, or for any
loss occasioned by any error of judgement or oversight on his part, or for any
other loss, damage or misfortune whatever which shall happen in the execution of
the duties of his office or in relation thereto, unless the same are occasioned
by his own wilful misfeasance.
It is expressly agreed that Shareholders are permitted to
consider and pursue their own personal interests when acting as Shareholders,
except as required by Applicable Law or as contemplated herein. Further,
except as required by Applicable Law and except as may be contemplated in any
contract, agreement or other commitment between the Shareholder and the
Corporation (or any Affiliate or Subsidiary or Associate thereof), no
Shareholder shall be personally liable for any debt, obligation or liability
of the Corporation (including, without limitation, any transaction risk or
liability arising from the Business or the business of any other
Shareholder), except as may be imposed by Applicable Law, PROVIDED that this
sentence is not intended to limit or restrict any obligation of, or
undertaking given by, any Shareholder (or Affiliate or Subsidiary or
Associate thereof) under any other contract, agreement or other commitment
with the Corporation. No individual trustee, officer, director, stockholder,
member, partner, employee or agent of any Shareholder, in his or her
individual capacity as such, shall have any personal liability for any
failure by such Shareholder to perform, satisfy or discharge any obligation
or liability under this Agreement.
The parties expressly acknowledge and agree that any person
appointed to the Board of Directors by a Strategic Partner, or the Founding
Shareholder, as the case may be, pursuant to Section 4.2(a) (a "Nominee") may
be an employee or officer of such Shareholder(s) or one or more of the
Affiliates thereof, or otherwise may not be independent from such persons.
<PAGE>
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In the event that during any discussions with any member of the
senior management of the Corporation or in connection with, for the purposes
of, and/or concerning the business to be transacted at, a meeting of the
Board of Directors, such Nominee is aware of information which may be
relevant, pertinent or of interest to, the Business or to the Corporation
(the "Subject Matter") which information (the "Conflicting Information"):
(I) if disclosed to the Corporation would result:
(a) in a breach or contravention of a fiduciary duty owed by
such Nominee to such Shareholder(s) or to one or more of
the Affiliates thereof, or would otherwise result in such
Nominee, or such Shareholder(s) or one or more of the
Affiliates thereof, being in breach or contravention of,
or in default under, Applicable Law; or
(b) in a breach or contravention of, or default under, any
term or provision of any agreement or commitment to which
such Nominee, or such Shareholder(s) or one or more of
Affiliates thereof, is a party or by which any such
person(s) is bound which specifically prohibits such
disclosure to be made; or
(II) constitutes trade secrets, strategic information, know-how,
marketing plans, client lists or other proprietary information of
such Shareholder(s) or any of its Affiliates,
then such Nominee shall, if such Conflicting Information is immediately
pertinent to the Subject Matter at the time of such discussion or meeting:
(i) disclose to such member of senior management of the Corporation in the
case of such discussion, or to the Chairman or the President of the
Corporation in the case of such meeting of the Board of Directors, the fact
that he/she is aware of such Conflicting Information, and at such time
describe in reasonable detail the general nature of such Conflicting
Information (provided, for greater certainty, that such description need not
contain any such detail which would result in a breach of the conflicting
duty); and (ii) excuse himself/herself from such discussion, or, in the case
of such meeting of the Board of Directors, from such meeting until such time
that the remaining members of the Board of Directors at such meeting have
fully and completely discussed the Subject Matter and have either reached a
resolution regarding the same or have adjourned any further discussion of the
Subject Matter until a future time and place, at which time the foregoing
provisions shall again apply (and so on from time to time; provided, for
greater certainty, that such Nominee may attend any such subsequent meeting
of the Board of Directors for the purposes of establishing a quorum).
If such Nominee satisfies the foregoing, each party hereto
expressly waives and releases any and all claims, in any form, which it may
have against such Nominee, such Shareholder and any of its Affiliates,
whether based on common law (including, without limitation, the laws of
equity) or statute, for such Nominee's failure to disclose the Conflicting
Information. The parties hereto acknowledge that the Shareholder who
nominated a Nominee to be a director of the Corporation holds the benefit of
the waiver, release and authorization
<PAGE>
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contained in this Section in trust for its own benefit and for the benefit of
such Nominee and its Affiliates from time to time.
The parties hereto further hereby acknowledge that each Nominee
shall be required to enter into a form of confidentiality and non-disclosure
agreement with the Corporation (in form and substance satisfactory to the
Corporation, such Nominee and the Shareholder(s) who has appointed such
Nominee, and their respective counsel, each acting reasonably and in good
faith) which, in general, shall provide that such Nominee shall not, without
the prior written consent of the Corporation, disclose to the Shareholder(s)
who has appointed such Nominee and to any of the Affiliates and Subsidiaries
thereof or to any of the other Shareholders or their Affiliates and
Subsidiaries or to any of its and their officers, directors, employees,
consultants, agents, advisors, accountants, lawyers, attorneys or other
representatives, any Confidential Information revealed to such Nominee in
his/her capacity, and during his/her tenure, as a director of the Corporation
which the Corporation determines, acting in good faith, would, if disclosed
to Competitors, place, or potentially place, the Corporation at a strategic
or competitive disadvantage to any such Competitor, provided that the
Corporation indicates to such Nominee that such information is Confidential
Information which is not to be disclosed to the Shareholders or other persons.
Provided, further, that the Nominee shall not be liable to the
Corporation or the other parties hereto if he acts in good faith in
discussing the information so obtained with representatives of, or advisors
to, the Shareholder which shall have appointed him to the Board of Directors
at any time prior to the Corporation indicating to such Nominee that such
information so disclosed is Confidential Information and is not to be
discussed with the Shareholders. After such indication is made by the
Corporation, the Nominee will conduct himself in accordance with the
Corporation's instructions in this regard and any Shareholder which shall
have received such information shall, for greater certainty, be bound by the
provisions of Section 17.2 hereof.
4.4 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As required or permitted by the Act, the Corporation shall
indemnify and save harmless every director or officer, every former director
or officer, and every person who acts or acted at the Corporation's request
as a director or officer of a body corporate of which the Corporation is or
was a shareholder or creditor (or a person who undertakes or has undertaken
any liability on behalf of the Corporation or any such body corporate) and
his heirs and legal representatives, from and against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a
judgement, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Corporation or such body
corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
<PAGE>
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4.5 INSURANCE.
Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of any
director or officer, as the Board of Directors may from time to time
determine.
4.6 EFFECT OF ARTICLE 4.
The provisions of this Article 4 shall be in addition to and
not in substitution for any rights, immunities and protections to which every
director or officer, every former director or officer, and every person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or creditor (or a
person who undertakes or has undertaken any liability on behalf of the
Corporation or any such body corporate) and his heirs and legal
representatives, is otherwise entitled.
4.7 CERTAIN MATTERS PERTAINING TO EMPLOYEE SHAREHOLDERS AND
MANAGEMENT SHAREHOLDERS
Prior to an Initial Public Offering, any Employee Shareholder
shall vote or cause to be voted his Common Shares and any Common Shares held
by a Shareholder of which he is the Principal or held by a member of the
Immediate Family of such Employee Shareholder in the manner in which the
Founding Shareholder votes its Common Shares (either in favour or against
that particular matter) provided that any such vote:
(a) does not cause such Employee Shareholder (and/or the Shareholder
of which he is the Principal and/or his Immediate Family which is
the Shareholder) to be treated disproportionately with regard to
the Founding Shareholder in terms of the effect of such matter on
such parties' shareholdings in the Corporation;
(b) does not otherwise negatively impact or prejudice such Shareholder
disproportionately relative to the Founding Shareholder; or
(c) is not illegal or against public policy.
Prior to an Initial Public Offering, if any of the
circumstances contemplated by Section 18 of the Stock Option Plan (or
equivalent provisions of any supplementary incentive plan) become applicable,
then the Board of Directors, with appropriate notice and in a fair and
equitable manner, shall have the right and entitlement to cause the Employee
Shareholders and the Management Shareholders to tender, sell or escrow their
shares of the Corporation in the manner and on the terms contemplated by the
provisions of such Section 18. All determinations of the Board pursuant to
this Section 4.7 shall be conclusive and final.
4.8 CONFLICTS OF INTEREST.
In the event that one or more of the nominees of the Founding
Shareholder on the Board of Directors may be viewed as having a potential
conflict of interest in a decision to be made by the Board of Directors as a
result of being a member of, or related or connected to, a member of the
Founding Shareholder, the parties hereby agree to cause such matter to be
placed
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before the Shareholders for their approval at a duly constituted meeting of
the Shareholders, notwithstanding that such matter would not ordinarily be a
matter to be dealt with by the Shareholders.
4.9 RESOLUTION OF DISPUTES.
The following procedure will be adhered to in all disputes
arising under this Agreement which the parties cannot resolve informally. An
aggrieved party shall notify the Corporation, the Strategic Partners, the
Board of Directors, the Management Shareholders and the voting trustee for
the Employee Shareholders in writing of the nature of the dispute, with as
much detail as possible with respect thereto. The Corporation (on behalf of
all of the parties hereto other than the aggrieved party), on the one hand,
and the aggrieved party, on the other, shall each appoint a representative to
meet (in person or by telephone) within seven days after the date of such
written notification, to attempt to reach an agreement about the nature of
the dispute and the corrective action to be taken by the respective parties.
Similarly, if the Corporation is the aggrieved party, then it, on the one
hand, and the particular Shareholder(s) in respect of which it has the
dispute, on the other hand, shall appoint representatives to meet. If the
respective representatives are unable to agree on corrective action, senior
executives of the parties to the dispute having authority to resolve the
dispute without the further consent of any other person shall meet or
otherwise act to facilitate an agreement within 14 days of such written
notification. If such senior executives cannot resolve the dispute or agree
upon a written plan of corrective action to do so within seven days after
their initial meeting or other action, or if the agreed-upon completion dates
in the written plan of corrective action are exceeded, either party may
request arbitration as provided for below. Except as otherwise specifically
provided, neither party to the dispute shall initiate arbitration unless and
until this dispute resolution procedure has been employed or waived.
Either party to the dispute shall submit any dispute arising
from or relating to this Agreement, including any failure to agree on a
matter requiring agreement, and any claim based on or arising from an alleged
tort (except improper use or disclosure of the Corporation's proprietary
technology source code or as to ownership of the Corporation's intellectual
property), to arbitration in accordance with the provisions of Schedule "4.9"
hereto.
No Shareholder shall have any right to obtain or seek an
injunction or otherwise delay any Company Registration or Demand Registration
as a result of any controversy that may arise with respect to the
interpretation or implementation of Article 13 or Article 14. Provided,
however, that the provisions of the immediately preceding sentence shall not
preclude any Shareholder from claiming damages for breach of the provisions
of this Agreement, provided that such Shareholder has otherwise complied with
the provisions of this Section 4.9.
ARTICLE 5
OPERATION AND FINANCING
5.1 COMPOSITION AND COMPENSATION OF MANAGEMENT TEAM
For so long as Greg Wolfond holds the office of Chief Executive
Officer of the Corporation, he shall have the sole discretion and authority
to select the senior management team of the Corporation, and its Subsidiaries
and its Affiliates, including, but not limited to, the Chief
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Operating Officer, President, General Counsel, Secretary, Chief Technology
Officer and Chief Financial Officer. Greg Wolfond also has the sole
discretion and authority to propose the compensation of each of the
individual members of such management teams, including but not limited to
salaries, bonuses, stock option grants and other incentive compensation
arrangements, provided that: (i) the aggregate compensation of such
management teams shall not exceed the amount set in a budget approved in
accordance with the provisions of this Agreement; (ii) any stock option
grants or other incentive compensation arrangements involving the issuance of
securities are granted pursuant to the Stock Option Plan or other
arrangements approved in accordance with the terms hereof; and (iii) general
remuneration levels for designated management levels shall be set by a
Compensation Committee consisting of Greg Wolfond and two other directors (of
which at least one must be a nominee of a Strategic Partner, and none shall
be Management Directors) that are designated by him from time to time.
5.2 ACCOUNTANTS.
The external accountants of the Corporation shall, at the
fiscal year end of the Corporation, prepare financial statements for such
fiscal year in accordance with GAAP (by no later than the 120th day after the
end of a fiscal year), including a balance sheet, a statement of earnings and
retained earnings and a statement of source and application of funds,
together with an audit report thereon. Such financial statements shall also
include a reconciliation to applicable United States accounting standards, as
requested by any Strategic Partner, acting reasonably. Unless otherwise
determined by the Board of Directors, but in any event so long as a Strategic
Partner (or its respective Affiliates or Subsidiaries) is a Shareholder, an
audit of the accounts of the Corporation shall be required. If the Board of
Directors so determines, the parties hereto irrevocably direct the proper
officers of the Corporation to sign formal waivers of any requirement for an
audit on their behalf pursuant to Section 148 of the Act and/or to apply for
any regulatory approvals or discretionary relief in relation thereto.
5.3 INTERIM FINANCIAL STATEMENTS.
The Corporation shall, in addition to the annual financial
statements contemplated by Section 5.2, prepare and distribute to the
Founding Shareholder, the Strategic Partners, the Management Shareholders and
the Non-Employee Directors interim unaudited (but full accrual) financial
statements for the first, second and third fiscal quarters of each fiscal
year, on or prior to the day which is 45 days after the day on which the
fiscal quarter ends. Such financial statements shall also include a
reconciliation to applicable United States accounting standards, as requested
by any Strategic Partner, acting reasonably. Management of the Corporation
may, but shall not be obligated to, retain the external accountants of the
Corporation to review or otherwise assist in the preparation of such interim
financial statements.
ARTICLE 6
RESTRICTIONS ON TRANSFERS OF SHARES
6.1 RESTRICTIONS ON TRANSFERS.
Prior to an Initial Public Offering, each of the Shareholders
covenants that he or it will not sell, assign, transfer, pledge, mortgage,
charge, create a security interest in, hypothecate, enter into any agreement
or option to or otherwise dispose of, encumber or deal with any of the
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shares legally or beneficially owned by him, except in accordance with the
terms of this Agreement. The directors of the Corporation shall refuse to
permit the recording of a transfer of any shares which may have been
transferred otherwise than in accordance with the provisions of this
Agreement or if, as a result of such transfer, the number of Shareholders of
the Corporation (exclusive of persons who are in its employment and exclusive
of persons who having been formerly in the employment of the Corporation
were, while in that employment, and have continued after termination of their
employment to be, shareholders of the Corporation) would exceed 50 (two or
more persons who are the joint registered owners of one or more shares being
registered as one shareholder).
6.2 PERMITTED TRANSFERS
Notwithstanding Section 6.1 hereof, but subject to the
provisions of Section 7.4(f) hereof, any or all of the Common Shares owned by
any of the Shareholders may be transferred by the Shareholders to a Permitted
Transferee of a Shareholder provided that such Permitted Transferee executes
and delivers to the Corporation a written acknowledgement substantially in
the form annexed hereto as Schedule "6.2" and satisfactory to the Corporation
that such transfer is in accordance with and subject to the terms of this
Agreement. Notwithstanding any such disposition, as between the disposing
Shareholder and the other parties hereto the disposing Shareholder shall
remain liable as principal debtor under all covenants on his part contained
herein and the disposing Shareholder agrees to unconditionally guarantee to
the other parties hereto the due performance by the acquiror of all
obligations imposed upon him hereunder. The guarantee of the disposing
Shareholder is unconditional and may be enforced against him without
requiring the other parties hereto to first proceed against the acquiror or
to proceed against or exhaust any security held or to pursue any other remedy
whatsoever. The disposing Shareholder hereby authorizes the other parties
hereto to renew, compromise, extend, accelerate or otherwise change the time
for payment or any term relating to the performance of any such obligations
or to otherwise amend any provision hereof and hereby waives presentment,
protest, notice of protest, notice of dishonour, demand for performance and
notice of acceptance of this guarantee by the other parties hereto.
Provided, however, that notwithstanding anything to the contrary contained in
this Agreement, securities of the Corporation shall not be transferred if
such transfer would result in the Corporation ceasing to be a "private
company" (as defined in the Securities Act) or, if regulatory approval is
required, until all such approvals are received.
6.3 PERMITTED TRANSFERS FOR FOUNDING SHAREHOLDER.
Notwithstanding Section 6.1 hereof, any or all of the Common
Shares or any partial interest owned by a member of the Founding Shareholder
may be transferred by any member of the Founding Shareholder to a Permitted
Transferee of any such Shareholder or to another member of the Founding
Shareholder provided that any such Permitted Transferee or member of the
Founding Shareholder is not a Competitor or a Competitor of BMO and executes
and delivers to the Corporation a written acknowledgement substantially in
the form annexed hereto as Schedule "6.2" and satisfactory to the Corporation
that such transfer is in accordance with and subject to the terms of this
Agreement. Notwithstanding any such disposition to a Permitted Transferee or
to a member of the Founding Shareholder, as between the disposing Shareholder
and the other parties hereto, the disposing Shareholder shall remain liable
as principal debtor under all covenants on his part contained herein and the
disposing Shareholder
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agrees to unconditionally guarantee to the other parties hereto the due
performance by the acquiror of all obligations imposed upon him hereunder.
The guarantee of the disposing Shareholder is unconditional and may be
enforced against him without requiring the other parties hereto to first
proceed against the acquiror or to proceed against or exhaust any security
held or to pursue any other remedy whatsoever. The disposing Shareholder
hereby authorizes the other parties hereto to renew, compromise, extend,
accelerate or otherwise change the time for payment or any term relating to
the performance of any such obligations or to otherwise amend any provision
hereof and hereby waives presentment, protest, notice of protest, notice of
dishonour, demand for performance and notice of acceptance of this guarantee
by the other parties hereto. Provided, however, that notwithstanding
anything to the contrary contained in this Section, securities of the
Corporation shall not be transferred if such transfer would result in the
Corporation ceasing to be a "private company" (as defined in the Securities
Act) or, if regulatory approval is required, until all such approvals are
received.
6.4 PLEDGE OF COMMON SHARES BY FOUNDING SHAREHOLDER.
Notwithstanding Section 6.1 hereof, the Common Shares owned by
the Founding Shareholder may be pledged to fund BONA FIDE capital
contributions or loans made to the Corporation, provided that prior to the
creation of any such pledge the pledgee executes and delivers to the
Corporation and to the other Shareholders a written agreement satisfactory to
the Corporation which is addressed to the Corporation and the other
Shareholders wherein the pledgee agrees to assume all of the obligations of
the Founding Shareholder under this Agreement (including, without limitation,
those contemplated by Section 8.3) as if it were the Founding Shareholder
(with the exception of any matters, events, causes or liabilities pertaining
to the period prior to the time the pledgee becomes a Shareholder following
the exercise of any of its enforcement remedies in respect of any of the
Common Shares under Applicable Law) and covenants and agrees to be bound by
and subject to the terms, restrictions, provisions and conditions hereof,
including such terms, provisions and conditions relating to the disposition
of such Common Shares; and provided further that the pledgee is not a
Competitor or a Competitor of BMO.
ARTICLE 7
RESTRICTIONS ON INDIRECT
TRANSFERS OF SHARES OF THE CORPORATION
7.1 MANAGEMENT AND EMPLOYEE SHAREHOLDERS - RESTRICTIONS ON TRANSFER.
Each Management Shareholder and Employee Shareholder covenants
that, prior to an Initial Public Offering, so long as the member of their
respective Immediate Family in respect of which they are the Principal is a
Shareholder, they will not, and they will cause all members of their
Immediate Family who have interests in such Shareholder not to, sell, assign,
transfer, pledge, mortgage, charge, create a security interest in,
hypothecate, enter into any agreement or option to or otherwise dispose of,
encumber or deal with any securities of or interests in such Shareholder,
except in accordance with the terms of this Agreement or except with the
prior written unanimous consent of the Board of Directors.
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7.2 MANAGEMENT AND EMPLOYEE SHAREHOLDERS - PERMITTED TRANSFERS.
Prior to an Initial Public Offering, each Management
Shareholder and Employee Shareholder covenants that, so long as the
Shareholder of which he is the Principal is a Shareholder, no additional
shares, or securities convertible into, or warrants or rights to acquire
additional shares or securities of such Shareholder or other interests in
such Shareholder will be issued or created without the prior written approval
of the Board of Directors, save and except to such Principal or to any member
of his Immediate Family (who is not a Competitor or a Competitor of BMO) in
accordance with the provisions of this Agreement, provided that such
Shareholder or member of his Immediate Family executes and delivers to the
Corporation a written acknowledgement substantially in the form annexed
hereto as Schedule "6.2" and satisfactory to the Corporation that such
transfer is in accordance with and subject to the terms of this Agreement.
No such issuance shall, however, be permitted or be valid or effective until
written notice thereof shall have been given by such Shareholder to the
Corporation and, where shares are issued to any member of the Immediate
Family of such Shareholder (who is not a Competitor or a Competitor of BMO),
until the acquiror of those shares shall have entered into a written
agreement with the parties hereto agreeing not to sell, assign, transfer,
pledge, encumber, mortgage, charge, create a security interest in,
hypothecate, enter into any agreement or option to or otherwise dispose of or
deal with any of the said shares except to the Shareholder, the Principal or
the Immediate Family of such Principal, provided that the provisions of this
Article are complied with, MUTATIS MUTANDIS, by the acquiror thereof. Each
Shareholder and Principal in question agrees to unconditionally guarantee to
the other parties bound hereby the due performance by the acquiror of all of
the obligations imposed upon him hereunder. The guarantee of such
Shareholder and Principal is unconditional and may be enforced against either
one or both of such Shareholder and Principal without requiring the other
parties first to proceed against the acquiror or to proceed or exhaust any
security held or to pursue any other remedy whatsoever. Each Shareholder and
Principal hereby authorizes the other parties bound hereby to renew,
compromise, extend, accelerate or otherwise change the time for payment or
any term relating to the performance of any such obligations or to otherwise
amend the provisions hereof and hereby waives presentment, protest, notice of
protest, notice of dishonour, demand for performance and notice of acceptance
of this guarantee by the other parties bound hereby.
7.3 MANAGEMENT AND EMPLOYEE SHAREHOLDERS - PROHIBITION TO AMALGAMATE,
MERGE, ETC.
Prior to an Initial Public Offering, each Management
Shareholder and Employee Shareholder covenants that, so long as the
Shareholder of which he is the Principal is a Shareholder, he shall not cause
or permit such Shareholder to take part in any amalgamation, merger,
reorganization or similar proceeding, the effect of which would result in the
Principal in question and his Immediate Family owning less than 100% of the
issued shares or other interests of the resulting Shareholder from time to
time outstanding.
7.4 BMO, BAC, CSTC, SONERA, WFC, FTV AND HSBC - RESTRICTIONS ON
TRANSFER AND PERMITTED TRANSFERS.
(a) The provisions of Section 7.1 and, except as provided in Section
7.6 below, Sections 7.2 and 7.3 shall apply to BMO, MUTATIS
MUTANDIS (including, for greater
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certainty, with references to "Immediate Family" changed to
read "Permitted Transferees"), with respect to any Affiliates
or Subsidiaries thereof to which shares of the Corporation
shall be transferred by BMO or to which shares of the
Corporation shall be issued and in respect of which BMO is the
Principal.
(b) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 shall apply to BAC,
MUTATIS MUTANDIS (including, for greater certainty, with
references to "Immediate Family" changed to read "Permitted
Transferees"), with respect to any Affiliates or Subsidiaries
thereof to which shares of the Corporation shall be transferred
by BAC or to which shares of the Corporation shall be issued
and in respect of which BAC is the Principal.
(c) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 shall apply to Citicorp
with respect to CSTC and to CSTC, MUTATIS MUTANDIS (including,
for greater certainty, with references to "Immediate Family"
changed to read "Permitted Transferees"), with respect to any
Affiliates or Subsidiaries thereof to which shares of the
Corporation shall be transferred by CSTC or to which shares of
the Corporation shall be issued and in respect of all of which
Citicorp is the Principal.
(d) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 shall apply to Sonera,
MUTATIS MUTANDIS (including, for greater certainty, with
references to "Immediate Family" changed to read "Permitted
Transferees"), with respect to any Affiliates or Subsidiaries
thereof to which shares of the Corporation shall be transferred
by Sonera or to which shares of the Corporation shall be issued
and in respect of which Sonera is the Principal.
(e) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 shall apply to WFC,
MUTATIS MUTANDIS (including, for greater certainty, with
references to "Immediate Family" changed to read "Permitted
Transferees"), with respect to any Affiliates or Subsidiaries
thereof to which shares of the Corporation shall be transferred
by WFC or to which shares of the Corporation shall be issued
and in respect of which WFC is the Principal.
(f) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 hereof shall apply
MUTATIS MUTANDIS, to FTV1 and FTV2 with respect to their
respective Permitted Transferees to which shares of the
Corporation shall be transferred by FTV1 and FTV2 or to which
shares of the Corporation shall be issued and in respect of
which FTV is the Principal.
(g) The provisions of Section 7.1 and, except as provided in
Section 7.6 below, Sections 7.2 and 7.3 shall apply to HSBC,
MUTATIS MUTANDIS (including, for greater certainty, with
references to "Immediate Family" changed to read "Permitted
Transferees"), with respect to any Affiliates or Subsidiaries
thereof to which shares of the Corporation shall be transferred
by HSBC or to which shares of the Corporation shall be issued
and in respect of which HSBC is the Principal.
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(h) For greater certainty, each of BMO, BAC, CSTC, Sonera, WFC, FTV
and HSBC may cause their directly or indirectly held
shareholding in the Corporation to be transferred among their
respective Affiliates or Subsidiaries, as the case may be as
contemplated herein, subject only to: (i) the assignee being a
"Permitted Transferee"; (ii) the assignee executing and
delivering to the Corporation the written acknowledgement
contemplated by Schedule "6.2"; (iii) the assignor
acknowledging that it remains liable hereunder; and (iv) the
assignor and assignee covenanting in favour of the Corporation
and the other Shareholders that if the assignee might at any
time thereafter cease to be a "Permitted Transferee", the
shares of the Corporation held by the assignee shall be
transferred (in accordance with the provisions of this
Agreement) to some other affiliated entity which is a
"Permitted Transferee" and in respect of all of which the
original Shareholder (i.e., BMO, BAC, CSTC, Sonera, WFC, FTV
and HSBC) shall remain liable hereunder as Principal. For
greater certainty, Citicorp shall, notwithstanding any such
direct or indirect transfer, remain obligated as Principal of
CSTC and of Permitted Transferees of CSTC as well.
7.5 FOUNDING SHAREHOLDER - RESTRICTIONS ON TRANSFER AND PERMITTED
TRANSFERS.
The provisions of Sections 7.1 and 7.2 and, except as provided
in Section 7.6 below, Section 7.3 hereof shall apply, MUTATIS MUTANDIS, to
each member of the Founding Shareholder with respect to their respective
Affiliates and Subsidiaries. The members of the Founding Shareholder hereby
acknowledge and agree that notwithstanding that there is no restriction on
transfer of the shares of the Strategic Partners, the Founding Shareholder
shall not permit a transfer of the outstanding shares of the companies
forming part of the Founding Shareholder, except in compliance with the terms
hereof as if such transfer was a direct transfer of the Common Shares held by
the Founding Shareholder.
7.6 PERMISSIBLE INDIRECT TRANSFERS AND PERMISSIBLE AMALGAMATIONS FOR
THE FOUNDING SHAREHOLDER AND THE STRATEGIC PARTNERS.
For purposes of the application of Sections 7.2 and 7.3 to
Sections 7.4 and 7.5, a permissible amalgamation or a permissible issuance or
transfer of shares of an Affiliate or Subsidiary is one which results in the
successor Shareholder remaining an Affiliate or Permitted Transferee of the
Founding Shareholder or the Strategic Partner in question and in respect of
which such party remains the "Principal".
ARTICLE 8
DRAG-ALONG RIGHTS
8.1 APPLICATION.
The provisions of this Article 8 shall apply prior to an
Initial Public Offering. Notwithstanding the foregoing, the Founding
Shareholder may not exercise its right under this Article 8 at any time
before August 2, 2001 (i.e., the provisions of this Article 8 will not, prior
to such time, constitute an exception to the restrictions on transfer
provided by Article 6), without the express consent of all the Strategic
Partners then entitled to nominate a representative on the Board of Directors
pursuant to Article 4.
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8.2 RIGHT OF FIRST OFFER
Notwithstanding the provisions of Article 6 but subject to the
provisions of Section 8.1, in the event that the Founding Shareholder wishes to
sell all or any part of its Common Shares, it may pursue such sale or sales
provided that it observes the following rules and procedures (the "Right of
First Offer"):
(a) The Founding Shareholder may research the market for the shares
that it proposes to sell in order to determine a fair market value
for such shares and whether market conditions are optimal for such
sale. In pursuing such investigation, the Founding Shareholder
shall comply with the procedures stated in Section 15.2. The
Founding Shareholder shall also be permitted to discuss its
proposed sale and its opinions as to fair market value with the
Strategic Partners and to gauge their views and interest in
purchasing such shares. The Founding Shareholder need not obtain
an offer from a third party prior to implementing the following
procedures.
(b) If, having completed its review, the Founding Shareholder decides
to pursue such sale, it shall, by notice in writing (in this
Section 8.2, the "Offer"), offer to sell such number of Common
Shares desired to be sold (in this Section 8.2, the "Offered
Shares"), to the Strategic Partners, (the "Eligible Strategic
Partner(s)") at a specified price, which must be paid in cash
(unless otherwise specified by the Founding Shareholder), and upon
specified terms and conditions as set out in the Offer (in this
Section 8.2, the "Offer Price"). The Offer shall be open for
acceptance by written notice delivered to the Founding Shareholder
for a period of 15 business days, or if participation in the
transaction requires approval of the board of directors of any
Strategic Partner, up to 30 business days (in this Section 8.2,
the "Notice Period"). If the Offer is accepted by at least one of
the Eligible Strategic Partners during the Notice Period, then the
Founding Shareholder shall sell, and those of the Eligible
Strategic Partners which accepted the Offer (in this Section 8.2,
the "Purchaser(s)") shall purchase all, but not less than all, of
the Offered Shares at the Offer Price. If more than one of the
Eligible Strategic Partners has elected to purchase the Offered
Shares, the Offered Shares shall be allocated among the Purchasers
in proportion to their respective ownership of the Common Shares
as at the date of delivery of the Offer, calculated based on the
total number of Common Shares held by the Eligible Strategic
Partners. If, before the expiry of the Notice Period, none of the
Eligible Strategic Partners accept the Offer, then the Founding
Shareholder shall be entitled to seek or receive an offer from any
person dealing at arm's length with the Founding Shareholder for
the purchase of all or part of the Common Shares so offered for
sale.
8.3 RECEIPT OF THIRD PARTY WRITTEN OFFER.
If the Founding Shareholder has complied with the provisions of
Section 8.2 and receives a BONA FIDE written offer (in this Article 8, the
"Third Party Offer"), from any person dealing at arm's length with the Founding
Shareholder (in this Article 8, the "Offeror"), to purchase all or any part of
the Common Shares, which the Founding Shareholder wishes to
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accept, then, notwithstanding the provisions of Article 6, the Founding
Shareholder shall have the right, but not the obligation, exercisable within
30 business days following receipt by it of the Third Party Offer, to: (i)
sell such Common Shares pursuant to the Third Party Offer; and, at its
option, (ii) to cause the other Shareholders (other than the Strategic
Partners and subject to Sections 8.4 and 8.5, as the case may be) to sell a
PRO RATA number of Common Shares to the Offeror by delivering a written
notice (in this Article 8, the "Notice") to the other Shareholders indicating
that it wishes to accept the Third Party Offer (and, if applicable, the
maximum number of shares of the Corporation that the Founding Shareholder
proposes to sell), together with a copy of the Third Party Offer, and that it
intends to exercise its drag-along rights hereunder. Notwithstanding the
foregoing, the Founding Shareholder shall not be entitled to accept the Third
Party Offer unless (a) the proposed purchase price per Common Share is equal
to or greater than the Offer Price, as defined in Section 8.2; (b) the Third
Party Offer is received by the Founding Shareholder within 120 days following
the expiry of the Notice Period; and (c) the proposed purchase is completed
within 60 days from the end of such 120 day period, failing which the
provisions of Section 8.2 shall apply again, and so on from time to time.
The Strategic Partners shall be entitled to require the Founding Shareholder
to provide sufficient information to them concerning such transaction for
them to determine that the Founding Shareholder has complied with its
obligations pursuant to Sections 8.2 and 8.3.
8.4 OFFER FOR ALL, OR ANY AND ALL, COMMON SHARES.
In the event that the Third Party Offer is for the purchase of all
(or any and all) of the Common Shares and the Founding Shareholder elects to
exercise its drag-along rights by delivering the Notice to the other
Shareholders within the aforementioned period, all of the Shareholders shall,
subject to the provisions of this Article 8, do all things necessary and sign
such documents as are required to cause the Third Party Offer to be accepted
and: (i) as to the Common Shares held by the Strategic Partners and their
respective Affiliates and Subsidiaries, such Shareholders shall have the right,
but not the obligation, by written notice to the Corporation, the Offeror and
the Founding Shareholder, within 25 business days following receipt of the
Notice, to elect to sell all or part of their Common Shares under the Third
Party Offer; and (ii) as to the other Shareholders, such Shareholders shall sell
all of the Common Shares legally or beneficially owned by them to the Offeror.
Provided, however, that if the Founding Shareholder tenders less than all of the
Common Shares held by it to the Third Party Offer, the other Shareholders
required or electing to sell, as the case may be, shall only be compelled to
sell a PRO RATA portion of their Common Shares but shall remain entitled to
choose to sell a greater number of Common Shares pursuant to the Third Party
Offer. In the event a Shareholder does not fulfil his obligation to sell as
provided for herein, such Shareholder hereby irrevocably appoints the Chief
Executive Officer of the Corporation, from time to time, as his attorney, in
accordance with the POWERS OF ATTORNEY ACT (Ontario), to execute all such
documents and to do all such things as may be necessary to accept the Offer and
to complete such transaction.
8.5 OFFER FOR LESS THAN ALL COMMON SHARES.
In the event the Third Party Offer is to purchase less than all of
the Common Shares, the Founding Shareholder shall have the right, but not the
obligation, exercisable within 30 business days following receipt by it of the
Third Party Offer to deliver a written notice to the
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other Shareholders indicating that it wishes to accept the Third Party Offer
and, if elected by the Founding Shareholder, to cause all other Shareholders
(other than the Strategic Partners and their respective Affiliates and
Subsidiaries) to accept the Third Party Offer on a PRO RATA basis with the
Founding Shareholder.
The Strategic Partners shall have the right, but not the
obligation, to participate in the Third Party Offer with the Founding
Shareholder in the proposed transaction in accordance with the following
provisions. Each Strategic Partner that desires to participate in such
transaction may do so by delivery of written notice (in this Section 8.5, a "Tag
Along Notice") to the Founding Shareholder indicating a desire to participate in
the Third Party Offer and specifying a maximum number of shares desired to be
sold, which shall not be greater than their pro-rata entitlement calculated in
the manner set forth in the fourth paragraph of this Section 8.5, and indicating
whether it desires to participate in the "Second Round" contemplated below on or
prior to the date which is ten business days after the date of delivery of the
Third Party Offer by the Founding Shareholder.
All Shareholders participating in the transaction contemplated by
the Third Party Offer shall participate simultaneously with and conditional upon
the completion of the transaction of purchase and sale contemplated therein and
for the same consideration per share and otherwise on the same terms and
conditions as stated in the Third Party Offer.
All of the Shareholders (including the Strategic Partners and the
Founding Shareholder, but only to the extent of the maximum number of shares
specified by them, respectively) who accept (either voluntarily or otherwise)
the Third Party Offer shall thereupon be obligated to sell that number of one or
more classes of shares of the Corporation held by them determined as follows:
each Shareholder shall sell that number of shares of a particular class of
shares of the Corporation which is the subject of the Third Party Offer as is
equal to the product obtained by multiplying: (a) the number of shares of such
class which is the subject of the Third Party Offer, by (b) a fraction, the
numerator of which is the number of shares of such class held by the Shareholder
and the denominator of which is the aggregate number of outstanding shares of
such class, all determined as at the date of the Third Party Offer.
In the event a Shareholder does not fulfil his obligation to sell
as provided for herein, such Shareholder hereby irrevocably appoints the Chief
Executive Officer of the Corporation, from time to time, as his attorney, in
accordance with the POWERS OF ATTORNEY ACT (Ontario), to execute all such
documents and to do all such things as may be necessary to accept the Third
Party Offer and to complete such transaction. Furthermore, in such event, the
provisions of Article 10 of this Agreement shall not apply.
If the Third Party Offer contemplated by this Section 8.5 requires
the delivery of a number of Common Shares in excess of the number of Common
Shares to be sold as determined by the fourth paragraph of this Section 8.5
(such excess of Common Shares referred to in this Section 8.5 as the
"Unallocated Shares"), the Founding Shareholder shall give notice to those
Strategic Partners which have elected to participate in the Third Party Offer
(the "Unallocated Share Notice"), specifying such excess number of Common Shares
and the Strategic Partners who elected to participate in the Second Round (as
defined below) and whether the Founding Shareholder desires to participate in
the Second Round, and the following provisions shall apply:
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(a) Each of the Founding Shareholder and those of the Strategic
Partners which shall have elected to participate in the Third
Party Offer (in this Section 8.5, collectively, the "Sellers") and
which shall have elected to participate in the Third Party Offer
to the fullest extent of their PRO-RATA entitlement (i.e. they
have not limited their participation to a number of shares less
than they would have been entitled to sell pursuant to the
application of the numerical formula outlined above) and, in the
case of the Strategic Partners which have indicated an intention
to participate in the "Second Round" (as defined below) in their
tag-along notice (collectively with the Founding Shareholder if it
desires to participate in the Second Round, the "Second Round
Sellers"), shall be entitled, by delivery of written notice (the
"Participation Notice") to the Founding Shareholder within five
business days following the delivery of the Unallocated Share
Notice indicating that a Second Round allocation is required, to
sell additional shares to the Offeror (such process hereinafter in
this Section 8.5 referred to as the "Second Round").
(b) The Participation Notice shall specify a number of additional
Common Shares that the particular Strategic Partner wishes to sell
on the terms specified in the Third Party Offer.
(c) The number of additional Common Shares that each of the Second
Round Sellers shall sell pursuant to the Third Party Offer shall
be determined as follows:
(i) Each such Second Round Seller shall sell a number of
additional Common Shares equal to the lesser of: (I) its
PRO RATA share of the number of Unallocated Shares
(calculated with reference to the relative holdings of
equity shares of the Corporation as at the date of the
Third Party Offer represented by the Second Round
Sellers); and (II) the maximum number of shares specified
in the applicable Participation Notice (or, in the case
of the Founding Shareholder, since it does not deliver a
Participating Notice, such maximum number of shares that
it may determine);
(ii) The remaining Unallocated Shares, if any, shall be
allocated among those Second Round Sellers which shall
not yet have been allocated the maximum number of shares
that they desire to sell, by one or more repetitions of
the Second Round procedures outlined above, until the
first to occur of: (I) the full allocation of the
Unallocated Shares; or (II) all Second Round Shareholders
having been allocated the maximum number of Common Shares
specified by them. In the latter case, any remaining
Unallocated Shares may be sold by the Founding
Shareholder, should it determine that the third party
purchaser is unwilling to complete the transaction unless
all Unallocated Shares are made available for sale.
8.6 TERMS OF SALE BY SHAREHOLDERS.
In the event that the other Shareholders become obligated or elect
(as the case may be) to sell all or part of their Common Shares pursuant to the
operation of this Article 8, the
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completion of such transaction(s) shall be conditional upon the completion of
the purchase and sale contemplated in the Third Party Offer and upon each
such Shareholder selling such shares on the same terms and receiving the same
consideration per share as the Founding Shareholder is receiving under the
Third Party Offer. For greater certainty, on a sale of shares pursuant to
this Article 8, each Shareholder selling shares shall provide the Offeror
with such reasonable and customary covenants, representations and warranties
relating to the shares being sold by the particular Shareholder as well as
the nature and status of, and the substance of any default under, the
contractual arrangements between the particular Shareholder and the
Corporation or their respective Affiliates and Subsidiaries as shall be
generally consistent with those equivalent representations, warranties and
covenants given by the Founding Shareholder to the Offeror. Such
representations, warranties and covenants shall be given on a several basis,
and not jointly or jointly and severally.
8.7 APPLICABILITY OF TAG-ALONG RIGHTS.
In the event a Third Party Offer is received by the Founding
Shareholder and the Founding Shareholder elects to sell the Common Shares which
are the subject matter of such Third Party Offer and does not elect to exercise
its drag-along rights hereunder, the provisions of Article 10 shall apply.
8.8 SALES TO COMPETITORS.
Notwithstanding any other provision of this Article 8, no sale of
less than all of the then issued and outstanding shares of the Corporation shall
be permitted to be made pursuant to this Article 8: (a) to a Competitor or a
Competitor of BMO; and (b) unless the Offeror executes and delivers to the
Corporation a written acknowledgement substantially in the form annexed hereto
as Schedule "6.2" and satisfactory to the Corporation that such transfer is in
accordance with the terms of this Agreement.
8.9 APPLICATION OF ARTICLE 8 TO STRATEGIC PARTNERS.
For greater certainty, the Offeror shall have no right under this
Article 8 to require the Strategic Partners or any of their respective Permitted
Transferees to sell any shares, including Common Shares, held by such Persons
pursuant to any Third Party Offer. Also, for greater certainty, any sale of
Common Shares pursuant to this Article 8 to any Strategic Partner shall be
subject to the restrictions and limitations set forth in Section 1.17(b).
ARTICLE 9
RIGHT OF FIRST REFUSAL ON SHARES HELD BY
MANAGEMENT SHAREHOLDERS, EMPLOYEE SHAREHOLDERS
AND NON-EMPLOYEE DIRECTORS
9.1 APPLICATION.
The provisions of this Article 9 shall apply prior to an Initial
Public Offering. For greater certainty, transactions of purchase and sale of
the Purchased Shares contemplated by this Article 9 shall be permitted
notwithstanding the provisions of Article 6 hereof.
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9.2 OFFER TO FOUNDING SHAREHOLDER AND THE STRATEGIC PARTNERS.
If any Shareholder other than the Founding Shareholder and the
Strategic Partners (hereinafter in this Article 9 referred to as the "Offeror")
receives a BONA FIDE cash offer (hereinafter in this Article 9 called the
"Offer") from a Management Shareholder, Non-Employee Director or Employee
Shareholder to purchase all, or any part of, the Common Shares beneficially
owned by him, which is acceptable to him, he shall, by notice in writing
(hereinafter in this Article 9 called the "Second Offer"), offer to sell such
Common Shares (hereinafter in this Article 9 called the "Purchased Shares") to
the Founding Shareholder and to the Strategic Partners at the same price, which
must be paid in cash, and upon the same terms and conditions as are contained in
the Offer. Such notice shall be accompanied by a true copy of the Offer and an
affidavit of the Offeror attesting whether, and if so to what extent, there are
commissions or other similar fees that may be or may become due and payable to
any broker, agent or other intermediary in connection with the sale of the
Purchased Shares pursuant to the Offer and, if applicable, stating the amount
thereof. The Second Offer shall not be revocable except with the written
consent of the Founding Shareholder and the Strategic Partners and shall be open
for acceptance by written notice delivered by the Founding Shareholder, and/or
one or more of the Strategic Partners, as the case may be, for a period of 15
business days from the date upon which the Second Offer was given to the
Founding Shareholder and the Strategic Partners by the Offeror. Notwithstanding
anything to the contrary herein contained, the terms and conditions contained in
the Second Offer shall be amended so that there shall be deducted from the
purchase price for the Purchased Shares payable pursuant to the Offer the amount
of any commission or other similar fee that would otherwise have been payable to
any broker, agent or other intermediary in connection with the sale of the
Purchased Shares pursuant to the Offer.
9.3 PURCHASE OF SHARES BY FOUNDING SHAREHOLDER AND THE STRATEGIC
PARTNERS.
If the Second Offer is accepted by at least one of the Founding
Shareholder and/or the Strategic Partners, as the case may be, then the Offeror
(hereinafter in this Article 9 called the "Vendor") shall sell, and those of the
Founding Shareholder and the Strategic Partners which shall have accepted the
Second Offer, as the case may be, (hereinafter in this Article 9, the
"Purchaser(s)"), shall purchase, all, and not less than all, of the Purchased
Shares (if more than one of the Strategic Partners and the Founding Shareholder
have elected to purchase, the Purchased Shares shall be allocated PRO RATA to
their respective beneficial ownership of Common Shares as at the date of
delivery of the Second Offer) upon the terms and conditions contained in the
Second Offer. Unless otherwise agreed by them, the members of the Founding
Shareholder shall purchase the Purchased Shares to be purchased by them pro rata
to their respective beneficial ownership of Common Shares at the date of
delivery of the Second Offer.
9.4 SALE PURSUANT TO ORIGINAL OFFER.
If, during the time limited therefor, none of the Founding
Shareholder and the Strategic Partners, as the case may be, shall have accepted
the Second Offer, then the Offeror shall be entitled to sell the Purchased
Shares in accordance with the Offer. The Board of Directors before consenting
to the transfer of the Purchased Shares shall be entitled to require proof that
the sale took place in accordance with the Offer (except as to the date of
closing which, subject to the provisions of Section 9.5 hereof, may be varied).
The directors of the
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Corporation shall refuse to permit the recording of the transfer of the
Purchased Shares which may have been sold otherwise than in accordance with
the provisions of this Agreement.
9.5 REVIVAL OF RIGHT OF FIRST REFUSAL.
If a sale of the Purchased Shares pursuant to the Offer is not
completed within 60 days from the delivery of the Second Offer to the Founding
Shareholder and the Strategic Partners, as aforementioned, no sale of the
Purchased Shares pursuant to the Offer shall be made without again complying
with the terms of this Article 9, and so on from time to time.
9.6 CLOSING.
The closing of the transaction of purchase and sale pursuant to
the Second Offer shall take place at the Place of Closing at the Time of Closing
on the date (hereinafter in this Article 9 called the "Date of Closing") which
is 15 days after the acceptance of the Second Offer by the Founding Shareholder
and the Strategic Partners, as the case may be.
9.7 PROHIBITED SALES.
Notwithstanding any other provision of this Article 9, no sale of
Common Shares shall be permitted to be made pursuant to this Article 9:
(a) if such sale and subsequent transfer would result in the
Corporation ceasing to be a "private company" (as defined in the
Securities Act) or, if regulatory approval is required, until all
such approvals are received;
(b) to a Competitor or a Competitor of BMO; and
(c) unless the Purchaser executes and delivers to the Corporation a
written acknowledgement substantially in the form annexed hereto
as Schedule "6.2" and satisfactory to the Corporation that such
transfer is in accordance with and subject to the terms of this
Agreement.
ARTICLE 10
TAG-ALONG RIGHTS
10.1 APPLICATION.
The provisions of this Article 10 shall apply prior to an Initial
Public Offering, but shall not apply: (i) to a sale by the Founding Shareholder
in the circumstances contemplated by Article 8 (except pursuant to Section 8.7),
because the "tag-along rights" contemplated by Section 8.5 will apply; or
(ii) in the circumstances contemplated by Article 15 of this Agreement.
10.2 TAG-ALONG RIGHT.
Notwithstanding the provisions of Article 6, but subject to the
provisions of Sections 8.1, 8.2 and Section 10.3, the Founding Shareholder or
any member of the Founding Shareholder shall have the right to sell Common
Shares to any arm's length third party which is
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not a Competitor or a Competitor of BMO, provided that such arm's length
third party (in this Article, the "Offeror") executes and delivers to the
Corporation a written acknowledgement substantially in the form annexed
hereto as Schedule "6.2" and satisfactory to the Corporation that such
transfer is in accordance with and subject to the terms of this Agreement and
provided further that if the Founding Shareholder or any member of the
Founding Shareholder proposes to sell all or any portion of its Common Shares
pursuant to this Section 10.2, the proposed vendor shall, at least 25
business days prior to the date specified for completion of the transaction
of purchase and sale (in this Article 10, the "Offer"), give written notice
(in this Article 10, called a "Disposition Notice") to the other
Shareholder(s), exclusive of the Employee Shareholders, (in this Article 10,
the "Remaining Shareholder(s)") stating the nature and terms of the proposed
transaction, the maximum and/or minimum (as applicable) number of shares of a
particular class desired or required by the proposed purchaser and the
consideration for such sale in reasonable detail together with a statement of
the maximum number of shares that the Founding Shareholder proposes to sell
and stating that each Remaining Shareholder has (and the Remaining
Shareholder(s) shall then have) the option to participate with the Founding
Shareholder in the transaction contemplated by the Offer in accordance with
the following provisions.
Each Remaining Shareholder that desires to participate in the
Offer may do so by delivery of written notice (in this Article 10, a "Tag-Along
Notice") to the Founding Shareholder indicating a desire to participate in the
Offer and specifying a maximum number of shares desired to be sold, and
indicating whether it desires to participate in the "Second Round" contemplated
below, on or prior to the date which is ten business days after the date of
delivery of the Disposition Notice by the Founding Shareholder. All
Shareholders (including the Founding Shareholder) participating in the Offer (in
this Article 10, the "Sellers") shall participate simultaneously with and
conditional upon the completion of the transaction of purchase and sale
contemplated in the Offer and for the same consideration per share and otherwise
on the same terms and conditions as stated in the Offer.
Each Seller shall initially be entitled (and obligated) to sell up
to such number of shares of a particular class as is determined based on their
respective PRO RATA ownership of equity shares of the Corporation in accordance
with the following calculation, not to exceed the maximum number of shares of
the particular class specified in their Tag-Along Notice.
For the purposes of the immediately preceding paragraph, the PRO
RATA SALE entitlement of a particular Seller shall be calculated as follows.
Each Seller shall be allocated that number of shares of a particular class of
shares of the Corporation which is the subject of the Offer as is equal to the
product obtained by multiplying: (a) the number of shares of such class which is
the subject of the Offer by (b) a fraction, the numerator of which is the number
of shares of such class held by the Seller and the denominator of which is the
aggregate number of outstanding shares of such class, all determined as at the
date of the Offer. In the event a Seller does not fulfil its obligation to sell
as provided for herein, such Shareholder hereby irrevocably appoints the Chief
Executive Officer of the Corporation, from time to time, as its attorney, in
accordance with the POWERS OF ATTORNEY ACT (Ontario), to execute all such
documents and to do all such things as may be necessary to accept the Offer and
to complete such transaction.
If the Offer contemplated by this Article 10 requires the delivery
of a number of shares in excess of the number of shares to be sold as determined
by the immediately preceding
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paragraph (such excess number of shares referred to in this Section 10.2 as
the "Unallocated Shares"), the Founding Shareholder shall give notice to
those Sellers which have elected to participate in the transaction
contemplated by the Offer (in this Section, the "Unallocated Share Notice"),
specifying such excess number of Common Shares and those Strategic Partners
who elect to participate in the Second Round (as defined below) and whether
the Founding Shareholder desires to participate in the Second Round. The
following provisions shall apply to the Unallocated Shares:
(a) Each of the Sellers which shall have elected to participate in the
Offer to the fullest extent of their PRO RATA entitlement (I.E.
they have not limited their participation to a number of shares
less than they would have been entitled to sell pursuant to the
application of the numerical formula outlined above), as outlined
above, and which have (other than the Founding Shareholder)
indicated an intention to participate in the "Second Round" (as
defined below) in their Tag-Along Notice (inclusive of the
Founding Shareholder should it elect to participate in the Second
Round, collectively referred to as the "Second Round Sellers")
shall be entitled, by delivery of written notice (the
"Participation Notice") to the Founding Shareholder within five
business days following the delivery of the Unallocated Share
Notice, to sell additional shares to the Offeror (such process
hereinafter in this Section 10.2 referred to as the "Second
Round").
(b) The Participation Notice shall specify a number of additional
shares of each class that the particular Second Round Seller
wishes to sell on the terms specified in the Offer.
(c) The number of additional shares that the Founding Shareholder
(should it so desire to participate in the Second Round) and each
other Second Round Seller that shall have delivered a
Participation Notice shall sell pursuant to the Offer shall be
determined as follows:
(i) Each such Second Round Seller shall sell a number of
additional shares equal to the lesser of: (I) its PRO
RATA share of the number of Unallocated Shares
(calculated with reference to the relative holdings of
equity shares of the Corporation as at the date of the
Offer representing the Second Round Sellers); and (II)
the maximum number of shares specified in the applicable
Participation Notice (or, in the case of the Founding
Shareholder, since it does not deliver a Participation
Notice, such maximum number of shares that it may
determine);
(ii) The remaining Unallocated Shares, if any, shall be
allocated among those Second Round Sellers which shall
not yet have been allocated the maximum number of shares
that they desire to sell, by one or more repetitions of
the Second Round procedures outlined above, until the
first to occur of: (I) the full allocation of the
Unallocated Shares; or (II) all Second Round Shareholders
having been allocated the maximum number of shares
specified by them. In the latter case, any remaining
Unallocated Shares may be sold by the Founding
Shareholder, should it determine that
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the Offeror is unwilling to complete the transaction
unless all Unallocated Shares are made available for sale.
10.3 EFFECT OF EXERCISE OF TAG-ALONG RIGHT.
For greater certainty, if a Remaining Shareholder gives a
Tag-Along Notice, then:
(a) he or it shall be obligated to sell the shares specified in his
Tag-Along Notice (and Participation Notice, if applicable) upon
the terms specified in the Offer to the proposed purchaser under
the Offer, conditional upon and contemporaneously with the
completion of the transaction of purchase and sale contemplated in
the Offer; and
(b) the Founding Shareholder agrees with the Remaining Shareholder(s)
that it shall not sell any of its shares under such Offer unless
payment for the shares of each of the Remaining Shareholders who
gave a Tag-Along Notice (and Participation Notice, if applicable)
which are to be included in such sale is made in accordance with
the terms of the Offer.
10.4 TERMS OF SALE BY SHAREHOLDERS
On any sale of shares pursuant to this Article 10, each
Shareholder selling shares shall provide the third party purchaser under the
Offer with such reasonable and customary covenants, representations and
warranties relating to the shares being sold by the particular Shareholder as
well as the nature and status of, and the substance of any default under, the
contractual arrangements between the particular Shareholder and the Corporation
or their respective Affiliates and Subsidiaries as shall be generally consistent
with the covenants, representations and warranties given by the Founding
Shareholder to such third party subscriber. Such representations, warranties
and covenants shall be given on a several basis, and not jointly or jointly and
severally.
ARTICLE 11
PRE-EMPTIVE RIGHTS
11.1 PRE-EMPTIVE RIGHT.
Subject to the provisions of this Agreement, if the Corporation
desires to issue any Common Shares or securities convertible into or
exchangeable for Common Shares or any other equity securities or other
securities carrying rights, options or warrants to acquire such securities or
shares (in this Article 11, the "Offered Securities"), it shall offer, by
written notice (in this Article 11, an "Offer") to each of the Founding
Shareholder and the Strategic Partners (in this Article 11, an "Offeree") the
number and type of securities (in this Article 11, the "Offered Securities")
which the Corporation desires to issue (the "Proposed Issuance") and the cash
price which the Corporation desires to receive per Offered Security (in this
Article 11, the "Offered Price").
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11.2 OFFER TO THE FOUNDING SHAREHOLDER AND THE STRATEGIC PARTNERS.
The number of Offered Securities which shall be offered to each of
the Founding Shareholder and the Strategic Partners, as the case may be, for
purchase at the Offered Price shall be the number of Offered Securities which,
if purchased by the particular Shareholder, would maintain its proportionate
equity ownership interest in the Corporation as at the date of the Offer
(calculated on a fully-diluted basis). The Offer shall set out the aggregate
number of Common Shares, securities convertible into or exchangeable for Common
Shares, or any other equity securities carrying rights, options or warrants to
acquire such securities or shares outstanding at the close of business on the
date of the Offer and the number of Offered Securities available for purchase by
the Offeree, shall limit the time within which the Offer may be accepted (which
time shall not be less than 20 business days from the date of the Offer) and
shall limit the time within which any purchase resulting from acceptance of the
Offer must be completed (which time shall not be less than 35 business days nor
more than 60 business days after the date of the Offer) and shall fix the time,
date and place for completion of any purchase resulting from acceptance of the
Offer.
If an Offeree does not accept the Offer, or accepts it in respect
of less than its prescribed share of the Offered Securities: (i) the unclaimed
Offered Securities shall be first offered, for a period of 15 business days, in
the same relative proportions as the initial allocations referred to above, to
those of the Founding Shareholder and the Strategic Partners who shall have
subscribed for the full amount of the Offered Securities to which they were
entitled; and (ii) the balance of the unclaimed Offered Securities may then be
offered to such third-party persons (acting at arm's length with the Founding
Shareholder and the Strategic Partners and provided that any such third-party
person is not directly, or indirectly through its Affiliates and Subsidiaries, a
Competitor or a Competitor of BMO) as may be determined by the Board of
Directors at prices and on terms no less favourable to the Corporation than the
Offer; provided, however, that such third-party persons become subject to the
Shareholders' Agreement (including, without limitation, by delivering a written
acknowledgement substantially in the form annexed hereto as Schedule "11.4") on
terms substantially equivalent to the rights and obligations of the Management
Shareholders (i.e. they should not be afforded the governance powers of the
Strategic Partners). The provisions of Section 1.13 shall apply to the
amendment and restatement of the Shareholders' Agreement to reflect such
additional Shareholder, MUTATIS MUTANDIS. Any such issuances to such third
party subscriber shall be completed within 60 days of the determination of the
number of securities to be offered to the third party subscriber, failing which
the provisions of Sections 11.1 and 11.2 shall again apply thereto and so on
from time to time.
11.3 PURCHASE BY OFFEREE.
If the Offeree accepts the Offer in accordance with the terms
hereof, it shall be bound to purchase, take up and pay for, and the
Corporation shall be bound to issue, the Offered Securities to be purchased
by the Offeree in accordance with the foregoing provisions hereof, and the
Corporation shall promptly advise the Offeree of the number of the Offered
Securities to be purchased by the Offeree, whereupon the Corporation shall be
obliged to deliver to the Offeree at the time, date and place set out in the
Offer, certificates representing the Offered Securities registered in the
Offeree's name in a number equal to the number of the Offered
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Securities to be purchased by it against payment made in full in cash of the
aggregate consideration therefor. Unless otherwise agreed by them, the
members of the Founding Shareholder shall purchase the Offered Securities to
be purchased by them PRO RATA to their respective beneficial ownership of
Common Shares at the date of delivery of the Offer.
11.4 APPLICATION.
The provisions of this Article 11 shall apply only prior to an
Initial Public Offering and, except as provided in Sections 11.5, 11.6 and 11.7,
shall not apply in respect of any of the following:
(a) Offered Securities declared and/or paid by the Corporation as
dividends or distributions on its outstanding securities;
(b) Offered Securities of the Corporation issued as consideration for
the purchase by the Corporation of property (whether tangible or
intangible) in an arm's length transaction, provided that the
person to whom securities of the Corporation are so issued
executes and delivers to the Corporation a written acknowledgement
substantially in the form annexed hereto as Schedule "11.4";
(c) Offered Securities issued or granted by the Corporation in the
ordinary and normal course of business to any eligible person
pursuant to the Stock Option Plan (including the issuance of
Common Shares or other equity securities upon the exercise of
stock options issued thereunder) (including, in each case, the
issuance of Common Shares pursuant to the exercise of the
subscription options or commitments contemplated therein),
provided that such person, if not already a party hereto, executes
and delivers to the Corporation a written acknowledgement
substantially in the form annexed hereto as Schedule "11.4", as
amended to reflect the status of the subscriber as a Non-Employee
Director, Management Shareholder, Employee Shareholder or
Strategic Partner (subject to Section 1.13), as the case may be;
(d) Offered Securities issued to another Shareholder pursuant to the
exercise of their subscription right contemplated in Sections
11.1, 11.2, 11.5, 11.6 or 11.7;
(e) securities of the Corporation issued upon the exchange or
conversion of exchangeable or convertible securities of the
Corporation or upon the exercise of rights, options or warrants of
the Corporation (collectively, "Convertible Securities"), in each
case in respect of which the provisions of this Article 11 applied
at the time of the issuance of such Convertible Securities; and
(f) Offered Securities issued to a new Strategic Partner.
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11.5 SPECIAL PROVISIONS RELATING TO BMO'S PRE-EMPTIVE RIGHT.
BASIC PRE-EMPTIVE RIGHT
BMO shall have the benefit of the pre-emptive right contemplated
by Sections 11.1 and 11.2 (the "Basic Pre-emptive Right") (subject to the
provisions of Section 11.4) during the period commencing on the date hereof and
terminating on the earliest to occur of: (i) an Initial Public Offering; and
(ii) the date (in this Section 11.5, the "Termination Date") which is the later
of the BMO Secondary Anniversary and the termination of the BMO Continuing
Alliance. The Basic Pre-emptive Right shall apply notwithstanding any dilution
in the equity ownership interest in the Corporation maintained by BMO from time
to time.
AMENDED BASIC PRE-EMPTIVE RIGHT
From and after the Termination Date (but, for greater certainty,
only prior to an Initial Public Offering), BMO shall continue to benefit from
the provisions of Sections 11.1 and 11.2; however, such provisions shall, for
purposes of BMO's rights thereunder, be subject to the following amendments
(such amended subscription rights are hereby referred to as the "Amended Basic
Pre-emptive Right"):
(i) the right of BMO to subscribe for securities of the
Corporation shall be triggered only by the issuance of
equity shares of the Corporation (whether directly or
upon the conversion, exchange or exercise of Convertible
Securities constituting such equity shares) which would
result in a dilution of BMO's holdings of Common Shares
below 11.6% of the number of issued and outstanding
equity shares of the Corporation;
(ii) the number of Common Shares which BMO would be entitled
to purchase shall be such number of Common Shares not to
exceed that number which would result in BMO holding
11.6% of the total number of issued and outstanding
equity shares after the subject transaction is completed;
(iii) the Common Shares purchased by BMO pursuant to this
Section 11.5 shall be issued at the price per Common
Share (the "Designated Price") that the Common Shares are
issued or subscribed for pursuant to the subject
transaction (if applicable) unless the subject
transaction is the exchange, conversion or exercise of a
Convertible Security to which the provisions of Sections
11.1 and 11.2 hereof applied at the time of issuance
thereof; in which case the Designated Price shall be the
fair market value of the Common Shares at such time, as
determined by the Board of Directors acting reasonably;
(iv) the Amended Basic Pre-emptive Right shall apply with
respect to a Proposed Issuance contemplated by Section
11.1 notwithstanding the provisions of Sections 11.4(d),
(e) and (f) (however, for greater certainty, the Amended
Basic Pre-emptive Right shall not apply in the
circumstances contemplated by Sections 11.4(a), (b) and
(c)); and
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(v) the Amended Basic Pre-emptive Right shall terminate and
shall thereafter cease and be of no further effect if BMO
does not purchase the maximum number of Common Shares
purchasable by it so as to maintain a proportional
holding of 11.6% of the number of issued and outstanding
equity shares of the Corporation.
SUPPLEMENTAL SUBSCRIPTION RIGHT
During the term of the BMO Continuing Alliance (but prior to an
Initial Public Offering), without duplication of the Basic Pre-emptive Right or
the Amended Basic Pre-emptive Right, BMO shall have an additional right to
subscribe for Common Shares of the Corporation (the "Supplemental Subscription
Right"). The Supplemental Subscription Right shall apply so as to enable BMO to
maintain a holding of 11.6% of the then issued and outstanding equity shares of
the Corporation during the BMO Continuing Alliance (the Amended Basic
Pre-emptive Right has the same effect thereafter). Pursuant to the Supplemental
Subscription Right: (i) if the Corporation issues Offered Securities; and (ii)
if applicable, BMO subscribes for the maximum number of Offered Securities
available to it in accordance with the provisions of Sections 11.1 and 11.2; and
(iii) the result of such transaction(s) (if applicable, in conjunction with
other issuances pursuant to Sections 11.1, 11.2, 11.6 and 11.7) is that BMO's
relative shareholding is diluted below 11.6% of the number of issued and
outstanding equity shares of the Corporation, then BMO shall be entitled, by
delivery of written notice to the Corporation by no later than 15th business day
after notice of the issuance of the Offered Securities in question is delivered
by the Corporation to BMO, to acquire that number of Common Shares of the
Corporation which is sufficient to maintain BMO's relative shareholding at 11.6%
of the number of issued and outstanding equity shares of the Corporation for a
subscription price per share equal to the Designated Price.
BMO's Supplemental Subscription Right shall apply notwithstanding
the provisions of Sections 11.4(d), (e) and (f) but shall not apply in the
circumstances contemplated by Sections 11.4(a), (b) and (c).
BOARD REPRESENTATION PRE-EMPTIVE RIGHT
In addition to (but without duplication of) BMO's Basic
Pre-emptive Right, Amended Basic Pre-emptive Right and Supplemental Subscription
Right, if, at any time prior to an Initial Public Offering, as a result of any
issuance of equity shares by the Corporation (including pursuant to ANY of the
events that would otherwise be excluded by Section 11.4), BMO would cease to be
entitled to nominate a member of the Board of Directors in accordance with
Article 4 hereof (i.e., BMO would cease to hold at least 4% (or 3%, as the case
may be) of the issued and outstanding Common Shares), then BMO shall have the
right to subscribe (the "Board Representation Pre-emptive Right"), during such
reasonable period of time, not to exceed 30 days, thereafter as the Board of
Directors shall prescribe, for such number of Common Shares sufficient to enable
it to retain its right of nomination, at a price per Common Share equal to the
Designated Price.
The Board Representation Pre-emptive Right shall terminate and be
of no further effect if at any time BMO ceases to be entitled to nominate a
member of the Board of Directors
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in accordance with the provisions of Article 4 and fails to exercise its
Board Representation Pre-emptive Right so as to retain its board nominee.
EFFECT OF MERGERS AND SIMILAR TRANSACTIONS
BMO acknowledges and agrees that its rights under this Section
11.5, described under the headings "Amended Basic Pre-emptive Right" and
"Supplemental Subscription Right", shall terminate immediately upon the
completion of the merger of BMO and one or more entities which together result
in a person with more than 2 times the assets of BMO immediately prior to such
transaction, or series of transactions which effect such merger, provided
however, that such termination of rights shall not apply to, and shall not be
applicable in the context of, the merger of BMO as aforesaid with any bank
listed in Schedule I of the Bank Act as at August 2, 1999.
CALCULATING PERCENTAGE OWNERSHIP
For the purposes of determining BMO's subscription entitlement
from time to time pursuant to this Section 11.5, as described under the headings
"Amended Basic Pre-emptive Right" and "Supplemental Subscription Right", BMO's
percentage holding of equity shares of the Corporation (both before and after
the pre-emptive right is exercised) shall be calculated by excluding from the
issued and outstanding capital of the Corporation the aggregate number of Common
Shares previously issued in the circumstances contemplated by Sections 11.4(a),
11.4(b), and 11.4(c). For greater certainty, shares of the Corporation issued
pursuant to the Stock Option Plan shall not attract pre-emptive rights (other
than the Board Representation Pre-emptive Rights) and, for purposes of this
Article 11 only, such shares shall not be recognized for purposes of calculating
relative shareholding either before or after the transaction.
11.6 SPECIAL PROVISIONS RELATING TO BAC'S PRE-EMPTIVE RIGHT.
BASIC PRE-EMPTIVE RIGHT
BAC shall have the benefit of the Basic Pre-emptive Right
contemplated by Sections 11.1 and 11.2 at all times until the earliest of: (i)
an Initial Public Offering; and (ii) the date (the "BAC Termination Date") which
is the later of: (a) February 1, 2001; and (b) the termination of the Continuing
Alliance (as defined in the BAC Technology License Agreement - hereinafter
referred to as the "BAC Continuing Alliance"). BAC's Basic Pre-emptive Right
shall apply regardless of its relative ownership of shares of the Corporation.
AMENDED BASIC PRE-EMPTIVE RIGHT
From and after the BAC Termination Date but prior to an Initial
Public Offering, provided that BAC shall have purchased the BAC Option Shares
BAC shall, in lieu of its Basic Pre-emptive Right, have the benefit of an
Amended Basic Pre-emptive Right on the same terms and conditions as apply to BMO
pursuant to Section 11.5, MUTATIS MUTANDIS, except that the proportional holding
that BAC shall be entitled to maintain shall be only 8.5% of the issued and
outstanding equity shares of the Corporation.
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SUPPLEMENTAL SUBSCRIPTION RIGHT
During the term of the BAC Continuing Alliance (but prior to an
Initial Public Offering), provided that BAC shall have purchased the BAC Option
Shares, without duplication of the Basic Pre-emptive Right or the Amended Basic
Pre-emptive Right, BAC shall have a Supplemental Subscription Right on the same
terms and conditions as apply to BMO pursuant to Section 11.5, MUTATIS MUTANDIS,
except that BAC shall be entitled to maintain a holding of only 8.5% of the
issued and outstanding equity shares of the Corporation.
BOARD REPRESENTATION PRE-EMPTIVE RIGHT
In addition to (but without duplication of) BAC's Basic
Pre-emptive Right, Amended Basic Pre-emptive Right and Supplemental Subscription
Right, if, at any time prior to an Initial Public Offering, as a result of any
issuance of equity shares by the Corporation (including pursuant to ANY of the
events that would otherwise be excluded by Section 11.4), BAC would cease to be
entitled to nominate a member of the Board of Directors in accordance with
Article 4 hereof (i.e. BAC would cease to hold at least 4% (or 3%, as the case
may be) of the issued and outstanding Common Shares), then BAC shall have a
Board Representation Pre-emptive Right on the same terms and conditions as apply
to BMO pursuant to Section 11.5, MUTATIS MUTANDIS.
The Board Representation Pre-emptive Right shall terminate and be
of no further effect if at any time BAC ceases to be entitled to nominate a
member of the Board of Directors in accordance with the provisions of Article 4
and fails to exercise its Board Representation Pre-emptive Right so as to retain
its board nominee.
EFFECT OF MERGERS AND SIMILAR TRANSACTIONS
The provisions of Section 11.5 "Effect of Mergers and Similar
Transaction" shall apply to BAC MUTATIS MUTANDIS, without regard to the
exception relating to mergers with a bank listed in Schedule I of the Bank Act.
CALCULATING PERCENTAGE OWNERSHIP
For the purposes of determining BAC's subscription entitlement
from time to time pursuant to this Section 11.6, as described under the headings
"Amended Basic Pre-emptive Right" and "Supplemental Subscription Right", BAC's
percentage holding of equity shares of the Corporation (both before and after
the pre-emptive right is exercised) shall be calculated by excluding from the
issued and outstanding capital of the Corporation the aggregate number of Common
Shares previously issued in the circumstances contemplated by Sections 11.4(a),
11.4(b), and 11.4(c). For greater certainty, shares of the Corporation, issued
pursuant to the Stock Option Plan shall not attract pre-emptive rights (other
than the Board Representation Pre-emptive Rights) and, for purposes of this
Article 11 only, such shares shall not be recognized for purposes of calculating
relative shareholding either before or after the transaction.
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11.7 SPECIAL PROVISIONS RELATING TO THE FOUNDING SHAREHOLDER'S, CSTC'S
AND SONERA'S PRE-EMPTIVE RIGHTS
BASIC PRE-EMPTIVE RIGHT
Each of the Founding Shareholder, CSTC and Sonera shall be
entitled to an equivalent Basic Pre-emptive Right pursuant to the provisions of
Sections 11.1 and 11.2 hereof at all times prior to an Initial Public Offering
and regardless of the level to which their respective ownership of equity shares
of the Corporation has declined.
SUPPLEMENTAL SUBSCRIPTION RIGHT
At all times prior to an Initial Public Offering, each of the
Founding Shareholder, CSTC and Sonera shall have a Supplemental Subscription
Right on the terms and conditions applicable to the Supplemental Subscription
Right to which BMO is entitled pursuant to Section 11.5 hereof, MUTATIS
MUTANDIS; provided, however, that the respective relative ownership levels of
equity shares of the Corporation to which such Supplemental Subscription Rights
shall apply shall be as follows:
(i) the Founding Shareholder: 18.7%;
(ii) CSTC: 15%; and
(iii) Sonera: 15%.
BOARD REPRESENTATION PRE-EMPTIVE RIGHT
In addition to (but without duplication of) their respective Basic
Pre-emptive Right, Amended Basic Pre-emptive Right and Supplemental Subscription
Right, if, at any time prior to an Initial Public Offering, as a result of any
issuance of equity shares by the Corporation (including pursuant to ANY of the
events that would otherwise be excluded by Section 11.4), either CSTC or Sonera
would cease to be entitled to nominate a member of the Board of Directors in
accordance with Article 4 hereof, (i.e., CSTC or Sonera would cease to hold at
least 4% (or 3%, as the case may be) of the issued and outstanding Common
Shares) then such Shareholder shall have a Board Representation Pre-emptive
Right on the same terms and conditions as apply to BMO pursuant to Section 11.5,
MUTATIS MUTANDIS. For greater certainty, the Founding Shareholder does not have
a "Board Representation Pre-emptive Right" as it is entitled to nominate a
director until it no longer holds any Common Shares, as provided in
Section 1.17.
The Board Representation Pre-emptive Right shall terminate and be
of no further effect if at any time the particular Shareholder ceases to be
entitled to nominate a member of the Board of Directors in accordance with the
provisions of Article 4 and fails to exercise its Board Representation
Pre-emptive Right so as to retain its board nominee.
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EFFECT OF MERGERS AND SIMILAR TRANSACTIONS
The provisions of Section 11.5 "Effect of Mergers and Similar
Transaction" shall apply to the Founding Shareholder, Citicorp (with respect to
CSTC's pre-emptive rights) and Sonera, MUTATIS MUTANDIS; provided, however,
that: (i) such provision shall be read without reference to the exception
relating to mergers with a bank listed in Schedule I of the Bank Act; and (ii)
in the case of Citicorp/CSTC, the relevant merger threshold shall be calculated
with respect to the assets of Citigroup Inc.
CALCULATING PERCENTAGE OWNERSHIP
For the purposes of determining the Founding Shareholder's, CSTC's
and Sonera's subscription entitlement from time to time pursuant to this Section
11.7, as described under the headings "Amended Basic Pre-emptive Right" and
"Supplemental Subscription Right", the Founding Shareholder's, Citicorp's and
Sonera's percentage holding (directly or indirectly) of equity shares of the
Corporation (both before and after the pre-emptive right is exercised) shall be
calculated by excluding from the issued and outstanding capital of the
Corporation the aggregate number of Common Shares previously issued in the
circumstances contemplated by Sections 11.4(a), 11.4(b), and 11.4(c). For
greater certainty, shares of the Corporation, issued pursuant to the Stock
Option Plan shall not attract pre-emptive rights (other than the Board
Representation Pre-emptive Rights) and, for purposes of this Article 11 only,
such shares shall not be recognized for purposes of calculating relative
shareholding either before or after the transaction.
11.8 SUBSCRIPTION REPRESENTATIONS
The Corporation shall be entitled, in connection with any
subscription for securities of the Corporation pursuant to Article 11, to
require the subscribing Shareholder to provide to the Corporation, in
writing, customary and typical representations as to the subscribing
Shareholder acting as principal, its investment intent and such other matters
as may be required by applicable securities laws.
11.9 EFFECT OF SHARE SALES ON SPECIAL PRE-EMPTIVE RIGHTS
The references in Sections 11.5, 11.6 and 11.7 to the
numerically-specified relative shareholdings that each of BMO, BAC, CSTC,
Sonera and the Founding Shareholder are entitled to maintain pursuant to
their respective rights under the headings "Amended Basic Subscription
Rights" and "Supplemental Subscription Rights" (as applicable) shall be
deemed to be adjusted downward to the actual relative shareholding of any
such Shareholder in the event that such shareholder ever sells Common Shares,
such adjustment to be calculated immediately after the sale in question and
to apply perpetually thereafter.
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ARTICLE 12
CALL RIGHT CONCERNING MANAGEMENT,
NON-EMPLOYEE DIRECTORS AND EMPLOYEE SHAREHOLDERS
12.1 CALL RIGHT.
Prior to an Initial Public Offering, if a Management
Shareholder, a Non-Employee Director or an Employee Shareholder (in this
Section, the "Departing Employee") shall for any reason cease to be an
employee of, or consultant to the Corporation and/or its Affiliates, the
Corporation (in this Section 12.1 called the "Purchaser") shall at any time
thereafter be entitled to send a notice in writing to the Departing Employee
requiring the sale of all of the shares of the Corporation beneficially owned
by the Departing Employee and any member of his Immediate Family (in this
Section 12.1, the "Purchased Shares") and on receipt of such notice, the
Departing Employee and his Immediate Family (collectively, in this Section
12.1, the "Vendor") shall sell to the Purchaser and the Purchaser shall
purchase for cancellation from the Vendor the Purchased Shares, upon the
terms and conditions hereinafter set forth. If the Corporation shall be
prohibited pursuant to any contract or by Applicable Law (not entered into
with a view to affording the Founding Shareholder and the Strategic Partners
the right to exercise the Corporation's purchase rights pursuant to this
Section 12.1) to which it is a party or by which it is bound or pursuant to
the Act or Applicable Law from purchasing shares in its capital, or would
otherwise pursuant to such contractual arrangements be prohibited from
completing such transaction, the Founding Shareholder and the Strategic
Partners shall be entitled, but not obligated, to exercise the Corporation's
purchase rights pursuant to this Section 12.1 (and if more than one of such
Shareholders elect to participate they shall purchase on a basis pro rata to
their respective beneficial ownership of Common Shares as at the date of
delivery of such notice). The members of the Founding Shareholder shall
purchase the Purchased Shares to be purchased by them pro rata to their
respective beneficial ownership of Common Shares at the date of delivery of
the Second Offer. The Corporation or the purchasing Shareholder(s), as the
case may be, which is to purchase the Purchased Shares is referred to
hereafter as the "Purchaser".
12.2 CALCULATION OF PURCHASE PRICE.
For the purposes of any transaction of purchase and sale
contemplated by this Article 12, the purchase price for the Purchased Shares
shall be the fair market value thereof determined effective as at the Date of
Closing of the transaction in question by the Board of Directors in good
faith and in consultation with professional advisers taking into
consideration such factors such as goodwill, cash flow, book value and recent
or anticipated material changes in the affairs of the Corporation. The
parties hereto acknowledge that the Board of Directors shall initially
determine fair market value as being the greater of 1 times sales or 1.5
times book value and the parties hereto further acknowledge that such
determination by the Board of Directors shall, for the purposes of this
Agreement, be final and binding and no appeal shall lie therefrom.
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12.3 CLOSING.
The closing of the transaction of purchase and sale herein
contemplated shall take place at the Place of Closing at the Time of Closing
on the date (in this Article 12, the "Date of Closing") which is the later of
(i) the date which is 15 days after receipt by the Departing Employee of the
notice contemplated in Section 12.1; and (ii) the date which is 15 days after
the purchase price for the Purchased Shares is finally determined in
accordance with the provisions of this Article 12.
ARTICLE 13
FOUNDING SHAREHOLDER REGISTRATION RIGHTS
13.1 DEMAND REGISTRATION.
(a) At any time after the earlier of: (I) the day which is nine months
after an Initial Public Offering; and (II) June 1, 2004, the
Founding Shareholder may (notwithstanding the provisions of
Article 4 hereof) request in writing (a "Founding Shareholder
Registration Request") that the Corporation qualify a prospectus
for, or effect the registration of, all or a part of the
securities of the Corporation owned by such Shareholder(s) under
the securities laws of one or more of the Provinces of Canada
and/or the United States. Provided, however, that no Founding
Shareholder Registration Request may be delivered after the fourth
anniversary of the Corporation's Initial Public Offering.
Provided, further, that if the inclusion in such offering of
shares to be issued by the Corporation would result in such
offering being the Corporation's Initial Public Offering, then the
Corporation may include such number of shares in the offering as
is considered advisable by the Board of Directors and the priority
rules of Section 4(a) of Schedule "13.1" shall be applicable to
the offering. The Founding Shareholder may effect only two
Founding Shareholder Demand Registrations (exclusive of any such
Founding Shareholder Demand Registration which results in the
Corporation's Initial Public Offering).
(b) Upon receipt of a Founding Shareholder Registration Request, the
Corporation shall: (i) as soon as practicable, but in any event
within five business days after receipt of such request, give
written notice of such request to the Strategic Partners, the
Management Shareholders and the Non-Employee Directors; and (ii)
thereafter use all reasonable efforts to effect such qualification
or registration, including therein securities with respect to
which the Corporation has received written requests for inclusion
therein from such other Shareholders (pursuant to their Piggyback
Registration rights under Article 14) within 30 days after the
receipt of the Corporation's notice, all in accordance with and
subject to the provisions of Schedule "13.1". (All registrations
pursuant to this Section 13.1 are referred to herein as "Founding
Shareholder Demand Registrations".)
13.2 PIGGYBACK REGISTRATION.
Whenever the Corporation proposes (other than pursuant to a
Founding Shareholder Demand Registration) to effect a Company Registration,
the Corporation will, no
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later than five business days after the decision is made to proceed or
receipt of a Registration Request (as defined in Schedule "13.1") by another
holder of securities, give written notice to the Founding Shareholder of its
intention to effect such a registration, and such notice shall offer the
Founding Shareholder the opportunity to qualify or register (on the same
terms and conditions) such number of securities owned by such Shareholder(s),
as such Shareholder(s) may request (in this Article 13, a "Piggyback
Registration"). The Corporation will include in such Company Registration
securities with respect to which the Corporation has received a written
request for the inclusion therein from the Founding Shareholder within 30
days after the receipt of the Corporation's notice, all in accordance with
and subject to the provisions of Schedule "13.1".
Notwithstanding the foregoing, the obligations described in this
Section 13.2 shall not apply to a Company Registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated under U.S. Securities Laws (as defined in Schedule 13.1) in the
future, or a registration relating solely to a transaction covered by Rule 145
under the 1933 Act registered on Form S-4 or similar form which may be
promulgated in the future.
13.3 EXPIRY OF REGISTRATION RIGHTS.
Notwithstanding any of the foregoing provisions, the
Corporation shall not be required to effect a Founding Shareholder Demand
Registration or include in a Piggyback Registration securities which the
Founding Shareholder has requested be included therein: (I) if the request of
the Founding Shareholder is made at any time after the date which is four
years from the Corporation's Initial Public Offering; or (II) if: (i) such
securities have ceased to be "restricted securities" pursuant to Rule 144 of
the 1933 Act and have become freely tradable upon the expiration of any
otherwise applicable hold period under Canadian securities laws (or any
similar provision under applicable securities laws); and (ii) an offering of
such securities would not be deemed to constitute a "distribution" within the
meaning of clause (c) of Subsection 1(1) of the Securities Act (or equivalent
provisions of Canadian securities laws); and (iii) the Founding Shareholder
holds less than 5% of the issued and outstanding equity shares of the
Corporation at the date of the request.
13.4 SHORT-FORM PROSPECTUS REGISTRATIONS
In addition, the Founding Shareholder may request the registration
or qualification of its Common Shares or other equity shares of the Corporation
pursuant to a Short-Form Offering, as defined in and in accordance with and
subject to the terms of Section 3 of Schedule "13.1".
ARTICLE 14
REGISTRATION RIGHTS OF STRATEGIC PARTNERS, MANAGEMENT
SHAREHOLDERS AND NON-EMPLOYEE DIRECTORS
14.1 DEMAND REGISTRATION RIGHTS OF STRATEGIC PARTNERS
(a) Subject to the provisions of Article 15, at any time after the day
which is nine months after an Initial Public Offering, the
Strategic Partners, acting collectively as described below, may
(notwithstanding the provisions of Article 4 hereof)
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request in writing (a "Strategic Partner Registration Request")
the Corporation to qualify a prospectus for, or effect the
registration of, all or a part of the Common Shares or other
equity shares of the Corporation owned by such Shareholder(s)
(on a PRO RATA basis to those Strategic Partners who wish to
participate in such qualification or registration or on such
other proportional basis as such Strategic Partners may
otherwise agree) under the securities laws of one or more of
the provinces of Canada and/or of the United States. Subject
to the preceding sentence, the exercise of any such collective
demand registration rights (the "Strategic Partner Demand
Registration") shall be implemented, governed by and otherwise
subject to the direction of those members of such group of
Strategic Partners which collectively holds a majority of the
Common Shares owned by all Strategic Partners. Provided,
however, that no Strategic Partner Registration Request may be
delivered after the fourth anniversary of the Corporation's
Initial Public Offering. The Strategic Partners may effect
only two Strategic Partner Demand Registrations (exclusive of
their rights pursuant to Article 15 to cause an Initial Public
Offering).
(b) After the Initial Public Offering, any person which acquires from
the then existing Strategic Partners in a particular transaction
(or series of related transactions) at least 5% of the outstanding
Common Shares shall be entitled to participate in the group
Strategic Partner Demand Registration rights, the group Short Form
Offering Registration rights and the Piggyback Registration rights
contemplated by this Article 14 as if it were a Strategic Partner.
(c) Upon receipt of a Strategic Partner Registration Request, the
Corporation shall: (i) as soon as practicable, but in any event
within five business days after receipt of such request, give
written notice of such request to the Founding Shareholder, the
Management Shareholders and the Non-Employee Directors; and
(ii) thereafter use all reasonable efforts to effect such
qualification or registration, including therein securities with
respect to which the Corporation has received written request for
inclusion therein from such other Shareholders (pursuant to their
Piggyback Registration rights under Article 13 and Article 14
hereof) within 30 days after the receipt of the Corporation's
notice, all in accordance with and subject to the provisions of
Schedule "13.1". (All registrations pursuant to this Section 14.1
are referred to herein as "Strategic Partner Demand
Registrations").
14.2 PIGGYBACK REGISTRATION RIGHTS OF STRATEGIC PARTNERS, MANAGEMENT
SHAREHOLDERS AND NON-EMPLOYEE DIRECTORS
Whenever the Corporation proposes to effect a Company
Registration, the Corporation will, no later than five business days after
the decision is made to proceed or receipt of a Registration Request by
another holder of securities, give written notice to the Strategic Partners,
the Management Shareholders and the Non-Employee Directors of its intention
to effect such a registration, and such notice shall offer such Shareholders
(exclusive of the Strategic Partners where such Company Registration results
from a Strategic Partner Demand Registration) the opportunity to qualify or
register (on the same terms and conditions) all or part of their Common
Shares, subject to the provisions of this Article 14 and Schedule "13.1". The
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Corporation will include in such Company Registration securities with respect
to which the Corporation has received written requests for the inclusion
therein from such Shareholders (complying with the provisions of this Article
14) within 30 days after the receipt of the Corporation's notice, all in
accordance with and subject to the provisions of Schedule "13.1".
Notwithstanding the foregoing, the obligations described in
this Section 14.2 shall not apply to a Company Registration relating solely
to employee benefit plans on Form S-1 or Form S-8 or similar forms which may
be promulgated under U.S. Securities Laws (as defined in Schedule 13.1) in
the future, or a Registration relating solely to a transaction covered by
Rule 145 under the 1933 Act registered on Form S-4 or similar form which may
be promulgated in the future.
14.3 EXPIRY OF REGISTRATION RIGHTS.
Notwithstanding any of the foregoing provisions, the
Corporation shall not be required to include securities in a Demand
Registration or Piggyback Registration which a Strategic Partner, a
Management Shareholder or a Non-Employee Director has requested be included
therein: (I) if such request is made at any time after the day which four
years after the Corporation's Initial Public Offering; or (II) if: (i) such
securities have ceased to be "restricted securities" pursuant to Rule 144 of
the 1933 Act with respect to such Shareholder and have become freely tradable
upon the expiration of any otherwise applicable hold period under Canadian
securities laws (or any similar provision under applicable securities laws);
(ii) an offering of such securities would not be deemed to constitute a
"distribution" within the meaning of clause (c) of Subsection 1(1) of the
Securities Act (or equivalent provisions of Canadian securities laws); and
(iii) the Shareholder in question then holds less than 5% of the issued and
outstanding equity shares of the Corporation.
14.4 SHORT-FORM OFFERING REGISTRATIONS
In addition, the Strategic Partners, acting collectively as
contemplated in Section 14.1(a), may request the registration or
qualification of their Common Shares or other equity shares of the
Corporation pursuant to a Short-Form Offering as defined in and in accordance
with and subject to the terms of Section 3 of Schedule "13.1".
ARTICLE 15
EXIT OPTIONS
15.1 STRATEGIC PARTNERS' ABILITY TO CAUSE AN INITIAL PUBLIC OFFERING.
If an Initial Public Offering has not occurred by June 1, 2004,
then, provided that a written notice invoking this Section 15.1 addressed to
the Corporation and signed by such number of Strategic Partners as is
required to represent a majority of the issued and outstanding Common Shares
and other equity securities of the Corporation, is delivered to the
Corporation, the Strategic Partners, the Management Shareholders and the
Non-Employee Directors, then the Strategic Partners which shall have executed
such notice (the "Exiting Partners"), acting jointly and with mutual consent,
shall be entitled, on behalf of the Corporation, to enter into discussions
with one or more securities dealers of recognised standing in Canada and/or
the United States with a view to obtaining a written representation (in this
Article 15, a "Representation")
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addressed to such Exiting Partners and to the Corporation stating that such
securities dealer(s) is highly confident that it could at that time form and
lead a syndicate of underwriters to complete an Initial Public Offering which
would give rise to gross proceeds from the offering (inclusive of proceeds to
the Corporation and the Shareholders) in excess of US$20 million. For
greater certainty, the allocation of available investor demand in the
offering between the shares that the Corporation desires to issue and sell,
on the one hand, and the shares which the Shareholders entitled to Piggyback
Registration rights desire to sell, on the other hand, shall be determined in
accordance with the priority rules of Section 4(a) of Schedule "13.1". In
the event that such a Representation is obtained, then the Corporation will,
in co-operation with the Strategic Partners and the Founding Shareholder,
forthwith take all reasonable steps to implement and give effect to an
Initial Public Offering as contemplated by the Representation. In this
regard, the Strategic Partners shall form a steering committee to act as a
point of contact for the Corporation to facilitate the co-operative process
by which the Corporation will conduct itself in pursuing the Initial Public
Offering initiated by the Exiting Partners. Management of the Corporation
will be directed to ensure that such steering committee is consulted and kept
informed on a regular basis.
15.2 SOLICITATION OF OFFERS FOR ALL OUTSTANDING COMMON SHARES.
In the event that the Exiting Partners are unable to obtain a
Representation after having made such reasonable inquiries and having taken
such reasonable steps to obtain same in the United States and/or Canada, then
the Exiting Partners shall be permitted to solicit offers for the purchase of
all of the issued and outstanding Common Shares from third parties who are at
arm's length to the Strategic Partners and who are not, directly or
indirectly, Competitors (in this Article 15, a "Third Party"). However, if
the Exiting Partners together with any additional Strategic Partners (also
considered to be included as "Exiting Partners") deliver to the Corporation,
the Strategic Partners, the Management Shareholders and the Non-Employee
Directors a further written notice addressed to the Corporation invoking this
Section 15.2 and signed by such number of Strategic Partners which represent
66 2/3rd% of the issued and outstanding Common Shares and other equity
securities of the Corporation, then the Exiting Partners shall be entitled to
solicit offers from Third Parties that are Competitors (provided that such
third parties are at arm's length with the Strategic Partners).
If the Exiting Partners receive a bona fide written cash offer
(in this Article 15, the "Offer") from a Third Party to purchase all of the
outstanding Common Shares and other equity securities of the Corporation,
which the Exiting Partners wish to accept, the Exiting Partners shall deliver
written notice of the Offer, together with a true copy thereof, to the
Corporation and to each of the other Shareholders indicating that they wish
to accept the Offer (or in the event of Offers which the Exiting Partners do
not wish to accept, they shall only deliver notice and a copy of the Offer).
The Founding Shareholder and the Strategic Partner, if any, which shall have
disagreed with the proposed course of action by the Exiting Partners(s) shall
have 20 business days from the receipt of the notice from the Exiting
Partners to decide whether to sell all of their Common Shares and other
equity securities of the Corporation to the Third Party pursuant to the Offer
together with the Exiting Partners or to purchase all of the Common Shares
and other equity securities of the Corporation of the Exiting Partners for
the same price per share and otherwise on the same terms (as between the
Founding Shareholder and the Strategic Partner(s) which shall not be an
Exiting Partner, such purchases shall take place on a several basis PRO RATA
to their respective ownership of Common Shares and other equity
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securities of the Corporation). The Founding Shareholder and the non-Exiting
Strategic Partner(s) shall make their decision known by written notice to the
Strategic Partners and each of the other Shareholders and to the Corporation
delivered on or prior to the 20th business day following receipt of the
Exiting Partners' notice, failing which the Founding Shareholder and the
non-Exiting Strategic Partner(s) shall be deemed to have elected to sell to
the Third Party. If the Founding Shareholder together with the non-Exiting
Strategic Partner(s) elect or are deemed to have elected to sell to the Third
Party, then all Shareholders shall do all things necessary and sign such
documents as are required to cause the Offer to be accepted and to cause all
of the outstanding Common Shares and other equity securities of the
Corporation, to be sold to the Third Party in accordance with the terms of
the Offer (and to cause the acceleration of the vesting and expiry dates of
all outstanding Options pursuant to the Stock Option Plan so that the holders
thereof can and shall be compelled to tender to the Offer in the same
manner). If any Shareholder fails to tender his or her Common Shares and
other equity securities of the Corporation, they shall be deemed to have
irrevocably appointed the Chief Executive Officer of the Corporation as their
lawful attorney in accordance with the POWERS OF ATTORNEY ACT (Ontario) to
execute all such documents and to do all such things as may be necessary to
cause the Offer to be accepted and to complete such transaction.
If the Founding Shareholder and/or the non-Exiting Strategic
Partner(s) shall have elected to purchase the shares of the Exiting Partners,
then the Offer shall not be accepted and instead the Exiting Partners and
their respective Affiliates and Subsidiaries which are then Shareholders (in
this Article, collectively called the "Vendor") shall sell to the Founding
Shareholder together with, if applicable, the non-Exiting Strategic
Partner(s) (in this Article, collectively called the "Purchaser") and the
Purchaser shall purchase from the Vendor all of the Vendor's Common Shares
and other equity securities of the Corporation, (in this Article, the
"Purchased Shares") for the cash price per share set out in the Offer and
such transaction of purchase and sale shall take place at the Place of
Closing at the Time of Closing on the date (in this Article, the "Date of
Closing") which is 20 days following the delivery of the written notice by
the Purchaser electing to purchase the Vendor's shares. If both the Founding
Shareholder and one or more non-Exiting Strategic Partner(s) elect to
purchase Common Shares, the Exiting Partners shall sell to them on a several
basis in proportion to the Purchaser's relative holdings of Common Shares and
other equity securities of the Corporation.
15.3 STRATEGIC PARTNER OFFER TO FOUNDING SHAREHOLDER AND OTHER
STRATEGIC PARTNERS.
The provisions of this Section 15.3 shall apply prior to an
Initial Public Offering. In the event that a Strategic Partner wishes to sell
all, but not less than all, of its Common Shares (in this Section 15.3, the
"Exiting Strategic Partner"), it shall, by notice in writing (in this Section
15.3, the "Offer"), offer to sell such Common Shares (in this Section 15.3,
collectively the "Offered Shares"), to the Founding Shareholder and the other
Strategic Partners (in this Section 15.3, the "Offerees") at a specified price,
which must be paid in cash (in this Section 15.3, the "Offer Price"). The Offer
shall be open for acceptance by written notice (in this Section 15.3, the
"Notice") delivered to the Exiting Strategic Partner specifying a number of
Common Shares desired to be purchased (which number shall not exceed the number
of Common Shares which is equal to the product obtained when: (1) the number of
Common Shares to be sold by the Exiting Strategic Partner is multiplied by (2) a
fraction the numerator of which is the number of
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Common Shares held by the particular Offeree at the date of Offer and the
denominator of which is the aggregate number of Common Shares held by all of
the Offerees as at the date of the Offer) for a period of 15 business days
after receipt by the Offerees of the Offer (in this Section 15.3, the "Notice
Period"). In the event that, prior to the expiry of the Notice Period, no
Offeree specifies that it wishes to purchase any of the Exiting Strategic
Partner's Common Shares, the Exiting Strategic Partner shall not be permitted
to sell any of its Common Shares under this Section 15.3 pursuant to the
Offer. If the Offer is accepted by at least one of the Offerees on or before
the expiry of the Notice Period (in this Section 15.3, the "First
Purchaser(s)"), then the Exiting Strategic Partner shall, by notice in
writing (in this Section 15.3, the "Second Offer"), offer those Common
Shares which have not yet been accepted by the Offeree(s) under the Offer (in
this Section 15.3, the "Remaining Common Shares"), to the First Purchaser(s)
only, at the same Offer Price. The Second Offer shall be open for acceptance
by written notice (in this Section 15.3, the "Second Notice") delivered to
the Exiting Strategic Partner for a period of 15 business days after receipt
by the First Purchaser(s) of the Second Offer (in this Section 15.3, the
"Second Notice Period"). Notwithstanding anything herein to the contrary,
the terms and conditions of the Second Offer shall be amended so that any
Offeree may purchase more than its PRO RATA portion of the Remaining Common
Shares. If, under the Second Offer, an Offeree wishes to purchase more than
its PRO RATA portion of the Remaining Common Shares, it shall state, in its
acceptance of the Second Offer, the number of Remaining Common Shares it so
wishes to purchase. In the event that, on or before the expiry of the Second
Notice Period, the Offerees under the Second Offer specify that they wish to
purchase, in the aggregate, all or more than all of the Exiting Strategic
Partner's Remaining Common Shares (in this Section 15.3, the "Second
Purchaser(s)"), then each Second Purchaser shall purchase its PRO RATA
portion of the Remaining Common Shares (based on the number of Common Shares
owned by the Second Purchasers as at the date of the Offer). The purchase by
the Purchaser(s) and the Second Purchaser(s) of the Exiting Strategic
Partner's Common Shares shall take place at the Place of Closing at the Time
of Closing on the date (in this Section 15.3, the "Date of Closing") which is
20 days following the delivery of the later of the Notice or Second Notice,
if required, to the Exiting Strategic Partner. Notwithstanding the
foregoing, in the event that, on or before the expiry of the Second Notice
Period, the Offerees do not specify that they wish to purchase, in the
aggregate, all of the Exiting Strategic Partner's Common Shares, then the
Exiting Strategic Partner shall not be permitted to sell any of its Common
Shares under this Section 15.3. Each Strategic Partner may only initiate the
provisions of this Section 15.3 once in any period of six consecutive months.
15.4 TERMINATION OF EMPLOYMENT OF GREG WOLFOND
In the event that the Material Decision contemplated by Section
1.1(mm)(x) is implemented (or if Greg Wolfond resigns from the office of
Chairman and Chief Executive Officer for health reasons or dies), then,
notwithstanding anything to the contrary in this Agreement, the Founding
Shareholder shall thereafter have the right, but not the obligation, to
pursue the marketing and sale of all or part of its shares of the Corporation
in accordance with the Right of First Offer Procedures contemplated in
Sections 8.2 and 8.3. The balance of Article 8 shall not apply. For example,
there shall be no restriction on the time before which such sales can occur,
and there shall be no "drag along rights" for the Founding Shareholder or
"tag along rights" for the benefit of the other Shareholders (pursuant to
Article 8 or Article 10).
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However, the Founding Shareholder shall be prohibited from selling any of such
Common Shares to a Competitor of BMO.
15.5 GENERAL RULES, RIGHTS AND OBLIGATIONS PERTAINING TO EXIT OPTIONS.
With respect to the ability of the Founding Shareholder to
solicit offers from time to time for all or a portion of the outstanding
Common Shares of the Corporation in accordance with Articles 8, 10 and 13
hereof, and for the purposes of the rights of the Founding Shareholder and
the Strategic Partners pursuant to this Article 15, each of the parties
hereto acknowledges and agrees and consents to the following arrangements:
(a) The soliciting Shareholder shall, provided that it acts in good
faith with a view to protecting the interests of the Corporation,
not be liable (and its agents and nominees similarly not liable)
for breach of duty of confidentiality or other rights in favour of
the Corporation or the other Shareholders as a result of such
solicitations, provided that appropriate confidentiality
undertakings and other reasonably prudent measures are put in
place.
(b) The Corporation shall provide reasonable assistance at its cost to
facilitate such solicitations, provided that appropriate
confidentiality undertakings and other reasonably prudent measures
are put in place. Such assistance by the Corporation shall
include the provision of information and documentation reasonably
necessary to obtain bona fide offers for the purchase of the
business of the Corporation as a going concern in a timely
fashion, which sale may be by way of all or substantially all of
the outstanding shares or sale of all or substantially all of the
property, assets and undertaking of the Corporation.
(c) With respect to the pursuit of an Initial Public Offering as a
result of the Founding Shareholder exercising its rights pursuant
to Article 13 or pursuant to the exercise of the rights of the
Strategic Partners under this Article 15, the Corporation and the
Shareholders shall act reasonably and in good faith with a view to
assisting the implementation and completion of such a transaction
and covenant and agree to enter into such undertakings, to deliver
such representations and to place such shares into regulatory or
contractual escrows as may be reasonably required in the
circumstances. Each of the Shareholders hereby constitutes and
appoints the Chief Executive Officer of the Corporation from time
to time as his lawful attorney in fact pursuant to the POWERS OF
ATTORNEY ACT (Ontario) in connection with the taking of such steps
and the signing of all applicable documentation. If,
notwithstanding the foregoing, an Initial Public Offering cannot
be implemented or proceeded with as a result of the refusal of one
or more Shareholders to agree, consent, perform a step or deliver
a document or otherwise or if any other impediment shall arise
with respect to the completion of such a transaction, the parties
hereto shall cause the Corporation to pursue, in a reasonable
manner, an alternative transaction pursuant to which all or
substantially all of the property, assets and undertaking of the
Corporation are distributed to a Subsidiary of the Corporation and
shares of such Subsidiary are qualified for distribution pursuant
to the Initial Public Offering.
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(d) In connection with any such exit options, all reasonable expenses
of or incidental to such transaction shall be borne by the
Corporation (provided that reasonable notification of significant
expenditures is given to the Corporation and its consent is
obtained) unless prohibited by Applicable Law, including the
policies and rules of securities regulators. Each of the parties
hereto covenants and agrees to act reasonably and in good faith
with a view to co-ordinating all activities in respect of exit
options with a view to minimising expenses, avoiding duplicate
effort and avoiding conflicting or inconsistent marketing and
business strategies.
ARTICLE 16
GENERAL SALE PROVISIONS
16.1 APPLICATION.
Except as may otherwise be provided in this Agreement, the
provisions of this Article 16 shall apply to any purchase for cancellation of
Common Shares or the purchase by any Shareholder of the shares of any other
Shareholder pursuant to the provisions of Articles 8, 9, 10, 12 or 15,
MUTATIS MUTANDIS.
Notwithstanding the foregoing:
(i) the provisions of Section 16.3(a) shall only apply to a
Strategic Partner selling all of its remaining shares of
the Corporation; and
(ii) the provisions of Section 16.3(d) and Section 16.3(f)
shall only apply to transactions pursuant to Article 9 or
Article 12.
16.2 DEFINED TERMS.
For the purpose of this Article 16, the terms "Vendor", "Date
of Closing" and "Purchased Shares" or similar phrases shall have the meanings
attributed thereto in Articles 8, 9, 10, 12 or 15 hereof, as the case may be,
and the term "Purchaser" shall mean the Corporation or the Shareholder(s) who
are purchasing the Purchased Shares, as the case may be.
16.3 CLOSING.
At the Time of Closing, the Vendor shall:
(a) if requested by the Corporation, deliver to the Corporation signed
resignations of the Vendor, its Principal and his nominees, if
any, as directors, officers and employees of the Corporation, as
the case may be;
(b) assign and transfer to the Purchaser the Purchased Shares being
purchased and shall deliver the required share certificate(s) duly
endorsed for transfer;
(c) do all other things required in order to deliver good and
marketable title to the Purchased Shares to the Purchaser free and
clear of any claims, liens and encumbrances whatsoever including,
without limitation, the delivery of any
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governmental releases and declarations of transmission.
Provided that if, at the Time of Closing, the Purchased Shares
are not free and clear of all claims, liens and encumbrances
whatsoever, the Purchaser may, without prejudice to any other
rights which it may have, purchase the Purchased Shares subject
to such claims, liens and encumbrances. In that event, the
Purchaser shall, at the Time of Closing, assume all obligations
and liabilities with respect to such claims, liens and
encumbrances and the purchase price payable by the Purchaser
for the Purchased Shares shall be satisfied, in whole or in
part, as the case may be, by such assumption;
(d) if all the shares of the Corporation held by the Vendor are being
sold, deliver to the Corporation and each of its directors a
release by each of the Vendor, its Principal, and his nominees, if
any, of all his claims against the Corporation and each of its
officers and directors with respect to any matter or thing up to
and including the Time of Closing which the Vendor, its Principal
or any such nominee knew or reasonably ought to have known as of
the Time of Closing in his capacity as a director, officer,
shareholder, employee or creditor of the Corporation or as a party
to this Agreement, as the case may be, except for (i) any claims
relating to indebtedness owing to or by the Corporation, (ii) any
claims for termination pay or damages in lieu of notice of
termination (unless otherwise specifically provided for in any
written employment or consulting agreement entered into by the
Vendor and the Corporation), (iii) any claims for accrued and
unpaid salary, expenses, pension or other employee benefits,
(iv) any claims relating to a written contract to which the
Corporation or any of its officers or directors and the Vendor are
parties which shall survive the sale of the shares of the
Corporation held by the Vendor, or (v) any claims which might
arise out of the transactions of purchase and sale herein
contemplated (provided, however, that the Vendor, its Principal
and their nominees shall continue to be entitled to the benefit of
Sections 4.3, 4.4 and 4.5 hereof, notwithstanding such sale of
shares);
(e) either provide the Purchaser with evidence reasonably satisfactory
to the Purchaser that the Vendor is not then a "non-resident" of
Canada within the meaning of the INCOME TAX ACT (Canada) or
provide the Purchaser with a certificate pursuant to Subsection
116(2) of the INCOME TAX ACT (Canada) with a certificate limit in
an amount not less than the purchase price for the Purchased
Shares; provided that if such evidence or certificate is not
forthcoming, the Purchaser shall be entitled to make the payment
of tax required under the INCOME TAX ACT (Canada) and to deduct
such payment from the purchase price for the Purchased Shares; and
(f) if all the shares of the Corporation held by the Vendor are being
sold, deliver to the other Shareholders, their Principals and
nominees, if any and the other parties hereto (other than the
Corporation) (collectively, the "Releasees") a release which shall
be executed and delivered by the Vendor and its Principal, and
each of his nominees, if any (collectively, the "Releasors") in
his capacity as a director, officer and shareholder of the
Corporation in respect of all of his claims against
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each Releasee in their capacity as a shareholder, director or
officer of the Corporation, which the Releasors knew or
reasonably ought to have known in their capacities as
aforesaid, except for any claims which might arise out of the
transaction of purchase and sale herein contemplated or any
claims concerning indebtedness or obligations owing to the
Vendor or its Principal or nominees pursuant to this Agreement
(including Section 16.4).
16.4 INDEMNITIES.
If all the shares of the Corporation held by the Vendor are being
sold and, at the Time of Closing, the Vendor, or any person for or on behalf of
the Vendor (inclusive of its Principals and nominees), shall have any
guarantees, securities or covenants lodged with any person to secure any
indebtedness, liability or obligation of the Corporation, and/or the other
Shareholder(s), their Principals and nominees, in connection with the
Corporation then the other Shareholder(s) and the Corporation shall use their
reasonable best efforts to deliver up or cause to be delivered up to the Vendor
or cancel or cause to be cancelled such guarantees, securities and covenants at
the Time of Closing. If, notwithstanding such reasonable best efforts, the
delivery up or cancellation of any such guarantee, security or covenant is not
obtained, the remaining Shareholder(s) (other than the Management Shareholders,
the Non-Employee Directors and the Employee Shareholders, and the members of
their Immediate Family who are then Shareholders) and the Corporation shall
deliver to the Vendor and, if applicable, to the person who shall have provided
such guarantee, security or covenant, an indemnity in writing, in form
reasonably satisfactory to counsel for the Vendor, indemnifying them against any
and all claims, demands, costs, expenses, damages, liabilities and suits, which
may be or which shall have been paid, suffered or incurred by them with respect
to the said guarantee, security or covenant.
16.5 REPAYMENT OF INDEBTEDNESS BY CORPORATION.
If all the shares of the Corporation held by the Vendor are being
sold and, at the Time of Closing, the Corporation is indebted to the Vendor in
an amount recorded on the books of the Corporation and verified by the
accountants of the Corporation, the Corporation shall, subject to any rights of
set-off, repay such amount to the Vendor at the Time of Closing.
16.6 REPAYMENT OF INDEBTEDNESS BY VENDOR.
If all the shares of the Corporation held by the Vendor are being
sold and, at the Time of Closing, the Vendor is indebted to the Corporation in
an amount recorded on the books of the Corporation and verified by the
accountants of the Corporation: (i) if the Corporation is the Purchaser, the
Corporation shall have the right to set-off such amount from the purchase price
for the Purchased Shares and from the amount of the indebtedness, if any, of the
Corporation to the Vendor, provided that if such indebtedness exceeds the
aggregate of the said purchase price for the Purchased Shares and the amount of
the indebtedness of the Corporation to the Vendor, the Vendor shall pay such
excess to the Corporation at the Time of Closing; and (ii) if one or more
Shareholder(s) is the Purchaser, the Vendor shall pay such indebtedness to the
Corporation at the Time of Closing.
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16.7 POWER OF ATTORNEY.
If, at the Time of Closing, the Vendor fails to complete the
subject transaction of purchase and sale, the Purchaser shall have the right, if
not in default under this Agreement, without prejudice to any other rights which
it may have, upon payment of the purchase price payable to the Vendor at the
Time of Closing (net of such amounts as may be payable to the Corporation
pursuant to this Article 16, in respect of which the Vendor irrevocably directs
the Purchaser to make payment to the Corporation) to the credit of the Vendor in
the main branch of the Corporation's bankers in the City of Toronto, to execute
and deliver, on behalf of and in the name of the Vendor, such deeds, transfers,
share certificates, resignations or other documents that may be necessary to
complete the subject transaction and the Vendor hereby irrevocably appoints the
Purchaser his attorney in that behalf in accordance with the POWERS OF ATTORNEY
ACT (Ontario). The parties hereto acknowledge and agree that such power of
attorney is a power coupled with an interest, given for consideration, and
cannot be revoked without the consent of the other parties hereto.
16.8 NO JOINT LIABILITY FOR PURCHASERS.
For greater certainty, the parties hereto, acknowledge and agree
that, where there is more than one Purchaser, the Purchasers in any transaction
of purchase and sale contemplated in this Agreement are not jointly liable for
the payment of the purchase price for the Purchased Shares and, if applicable,
any indebtedness being purchased hereunder, or for the covenants being given
hereunder to the Vendor (unless they themselves breached or acquiesced in the
breach) but are only liable for their proportionate share of the said purchase
price.
ARTICLE 17
RESTRICTIVE COVENANTS
17.1 MANAGEMENT, NON-EMPLOYEE DIRECTORS AND EMPLOYEE SHAREHOLDERS.
(a) Each Management Shareholder, Non-Employee Director and Employee
Shareholder and each Principal thereof shall not, while he or any
member of his Immediate Family (collectively, the "Departing
Shareholder") is a Shareholder of the Corporation or holds shares
of a Shareholder of the Corporation, as the case may be, directly
or indirectly, either individually or in partnership or in
conjunction in any way with any person or persons, whether as
principal, agent, consultant, shareholder, guarantor, creditor or
in any other manner whatsoever:
(i) solicit, interfere with or endeavour to entice away from
the Corporation or its Affiliates, accept any business
from or the patronage of or render any service to, sell
to or contract or attempt to contract with any person,
firm or corporation who was a client, customer or
supplier of the Corporation, its Affiliates or Associates
or a prospective client, customer or supplier of the
Corporation, its Affiliates or Associates with whom the
Corporation, its Affiliates or Associates have or have
had any dealing during the 12-month period immediately
preceding the date upon which the Departing Shareholder
ceases to be a Shareholder of the Corporation (to the
extent that such business, patronage, service, or
contract is competitive with the
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Business of the Corporation and its Subsidiaries or any
additional businesses from time to time carried on by
the Corporation and its Subsidiaries, collectively, a
"Competitive Business");
(ii) offer employment to or endeavour to entice away from the
Corporation or its Subsidiaries or Affiliates, any person
employed (or retained as a consultant) by the Corporation
or its Subsidiaries or Affiliates at the date of his
ceasing to be a Shareholder, or who was so employed or
retained at any time during the previous one-year period
or interfere in any way with the employment relationship
between any such employee (or consultant) and the
Corporation, its Affiliates or Subsidiaries; or
(iii) engage in, carry on or otherwise be concerned with or
have any interest in, or advise, lend money to, guarantee
the debts or obligations of, permit his name, or any part
thereof, to be used or employed by any person, firm,
association, syndicate or corporation engaged in or
concerned with or having any interest in a business (in
any form) competitive to the Business carried on in any
country where the Corporation and its Affiliates or
Subsidiaries have sold or licensed products or services
during the 12-month period immediately preceding the
Departing Shareholder ceasing to be a Shareholder of the
Corporation.
(b) The Shareholders have or will have specific knowledge of the
affairs of the Corporation, its Affiliates and Subsidiaries and
their business. Therefore, the Shareholders hereby acknowledge
and agree that all covenants, provisions and restrictions
contained in this Section 17.1 are reasonable and valid in the
circumstances of this Agreement, and all defences to the strict
enforcement thereof by the Corporation (and its Affiliates and
Subsidiaries, in respect of which the Corporation is contracting
herein as agent) are hereby waived.
If the provisions of this Section 17.1 are ever adjudicated to exceed the
limitations on time or geographic scope permitted by Applicable Law, then such
provisions shall be deemed reformed to the maximum time or geographic scope
permitted by Applicable Law. For greater certainty, this Section 17.1 shall not
be applicable to the Founding Shareholder, the Strategic Partners or their
respective Subsidiaries or Affiliates.
17.2 CONFIDENTIAL INFORMATION.
(a) The Shareholders and Principals acknowledge that in the course of
being, or associated with, a Shareholder, the Shareholders will
have access to and will be entrusted with Confidential
Information.
(b) The Shareholders and Principals acknowledge and agree that the
Confidential Information is the exclusive property of the
Corporation and its Affiliates and Subsidiaries. Except as may be
required as a Shareholder and subject to Applicable Law, and
except as permitted hereunder, each Shareholder and Principal
covenants and agrees that it will not disclose (directly or
indirectly), any of the Confidential Information to any person,
other than to its directors, officers,
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employees, agents or professional advisors that have a need to
know such information, nor shall the Shareholder or Principal
use or exploit (directly or indirectly), such information for
any purpose other than for the benefit of the Corporation, nor
will it disclose for any purpose other than for the benefit of
the Corporation the private affairs of the Corporation and its
Affiliates and Subsidiaries or any other information which it
may acquire during its tenure as a Shareholder with respect to
the business and affairs of the Corporation and its Affiliates
and Subsidiaries.
(c) Notwithstanding all of the foregoing, a Shareholder shall be
entitled to disclose such Confidential Information if such
disclosure is required pursuant to Applicable Law or pursuant to a
subpoena, order, recommendation or direction issued by a court,
arbitrator or any Governmental Authority (including OSFI),
provided that the Shareholder shall first have:
(i) properly notified the Corporation;
(ii) consulted with the Corporation, at the Corporation's sole
expense, on the advisability of taking steps to resist
such requirements; and
(iii) if the disclosure is required or deemed advisable,
co-operate with the Corporation, at the Corporation's
sole expense, in an attempt to obtain an order or other
assurance that such information will be accorded
confidential treatment.
(d) Nothing in this Section 17.2 or in Section 17.3 shall be construed
as limiting or impairing in any way any of the rights of the
Corporation and its Affiliates and Subsidiaries whether at law, in
equity or otherwise against the Shareholder with respect to the
disclosure, use or exploitation in any manner whatsoever to any
person or for any purpose, as the case may be, of any of the
Confidential Information. Provided that, for greater certainty,
the Shareholders shall be entitled to consult with their
professional advisors and agents for purposes of obtaining advice
with respect to the Corporation or for purposes of performing
duties to the Corporation provided that the disclosing Shareholder
directs such professional advisors or agents as the case may be to
hold such information in confidence and the Shareholder agrees to
indemnify the Corporation in the event of breach of confidence by
such persons.
(e) For greater certainty, nothing in this Section 17.2 or in Section
17.3 shall be construed as limiting or impairing in any way any of
the rights which may have been granted to the Strategic Partners
by the Corporation from time to time under a license or licenses
to use the software and operating systems developed by the
Corporation when such use is in accordance with the terms of such
license or licenses.
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17.3 NON-SOLICITATION OBLIGATION OF STRATEGIC PARTNERS AND THE FOUNDING
SHAREHOLDER.
Each Strategic Partner and the Founding Shareholder covenants and
agrees that, while it is a Shareholder and for the one year period immediately
following it ceasing to be a Shareholder, either directly or indirectly through
Affiliates or Subsidiaries, it shall not, directly or indirectly, either
individually or in partnership or in conjunction in any way with any person or
persons, whether as principal, agent, consultant, shareholder, guarantor,
creditor or in any other manner whatsoever offer employment to or endeavour to
entice away from the Corporation or its Subsidiaries or Affiliates, any person
employed (or retained as a consultant) by the Corporation or its Subsidiaries or
Affiliates as at the date of such Strategic Partner or Founding Shareholder
ceasing to be a Shareholder, or who was so employed or retained at any time
during the previous one-year period or interfere in any way with the
relationship between any such employee (or consultant) and the Corporation, its
Affiliates or Subsidiaries. Provided, however, that the provisions of this
Section 17.3 shall not apply to newspaper and other generally available or
disseminated recruiting activities conducted by a Strategic Partner or the
Founding Shareholder; provided that they do not expressly address or direct any
such recruiting activities at the employees or consultants of the Corporation
(or of the Subsidiaries or Affiliates thereof). The Strategic Partners and the
Founding Shareholder have or will have specific knowledge of the affairs of the
Corporation, its Affiliates and Subsidiaries and their business. Therefore,
such Shareholders hereby acknowledge and agree that all covenants, provisions
and restrictions contained in this Section 17.3 are reasonable and valid in the
circumstances of this Agreement, and all defences to the strict enforcement
thereof by the Corporation (and its Affiliates and Subsidiaries, in respect to
which the Corporation is contracting herein as agent) on the basis that such
covenants, provisions and restrictions are not reasonable or valid or otherwise
against public policy are hereby waived. Notwithstanding the foregoing, the
parties hereto covenant and agree that the restrictive covenants set forth in
this Section 17.3 apply only to the business group(s) within the affiliated
organization of each Strategic Partner that work directly with the Corporation,
and do not apply generally to any Strategic Partner, its Affiliates and
Subsidiaries and in the case of FTV, shall apply only to FTV and shall not apply
to its unitholders or to any entity in which FTV holds an equity investment.
17.4 ACKNOWLEDGEMENT OF REASONABLENESS.
The covenants in Sections 17.1, 17.2 and 17.3 are given by the
Shareholder and Principal acknowledging that the Corporation and its Affiliates
and Subsidiaries carry on, or will carry on, business initially throughout North
America, that he will have significant responsibilities in connection with the
Corporation and its Business and affairs, and that he either has or will have
specific knowledge of the private affairs and business of the Corporation and
its Affiliates and Subsidiaries. Therefore, the parties hereby agree that all
restrictions contained in Sections 17.1, 17.2 and 17.3 are reasonable, necessary
and fundamental to the protection of the Corporation, its Affiliates and
Subsidiaries and their businesses and that a breach by the Shareholder would
result in immediate and irreparable damages to the Corporation that could not
adequately be compensated for by monetary award. Accordingly, it is expressly
agreed by each Shareholder and its respective Principal, if any, that, in
addition to all other remedies available to it, the Corporation shall be
entitled to the immediate remedy of an interim, interlocutory and
<PAGE>
- 84 -
permanent injunction as well as an accounting of all profits arising out of
any breach by the Shareholder or the Principal or nominees thereof.
17.5 SURVIVAL.
The provisions of this Article 17 shall survive the termination of
this Agreement.
ARTICLE 18
GUARANTEE
18.1 GUARANTEE OF PRINCIPAL.
Each Principal hereby unconditionally guarantees that the
Shareholder of which he is the Principal will duly and punctually observe and
perform all of the covenants and obligations on its part to be observed and
performed pursuant to the provisions of this Agreement or pursuant to any
instrument or agreement delivered pursuant to or contemplated by this Agreement
and hereby undertakes and agrees to indemnify and save harmless the Corporation
and the other Shareholders and Principals from and against all liability, harm,
loss, costs, charges, damages and expenses of any nature whatsoever (including
legal fees on a solicitor and client basis) occasioned by any act or default of
the Shareholder of which he is the Principal contrary to such covenants and
obligations or which may be incurred, suffered or sustained by reason of any
failure to observe and perform all or any of such covenants and obligations.
18.2 NATURE OF GUARANTEE.
This guarantee shall be continuing, unconditional and
irrevocable and a fresh cause of action shall be deemed to arise in respect
of each such default. Without limiting the generality of the foregoing, the
obligations of each Principal hereunder shall not be released, discharged,
impaired or in any way affected by any extensions of time, indulgences or
modifications granted by any party in favour of another, to enforce any of
the terms or provisions of this Agreement (or by any amendment of the terms
of this Agreement) or by the bankruptcy, insolvency, dissolution,
amalgamation, winding-up or reorganization of the Corporation, or the
Shareholder of which he is the Principal or by any other act or proceeding in
relation to the Corporation, the Shareholder of which he is the Principal or
this Agreement whereby the Principal might otherwise be released or
exonerated, and each Principal hereby waives any right to require the
Shareholders and Principals to exercise or exhaust any action or recourse
against any other party before requiring performance by such Principal
pursuant to this guarantee.
18.3 GRANT OF EXTENSIONS, ETC.
The other parties hereto may grant extensions of time or other
indulgences, take and give up securities, accept compositions, grant releases
and discharges and otherwise deal with the Shareholder of which the Principal
is the Principal as they may see fit and may apply all monies received from
such Shareholder or others, or from securities, upon such part of the
Shareholder's liability as they may think best, without prejudice to or in
any way limiting or lessening the liability of the Principal in question
under this guarantee.
<PAGE>
-85-
18.4 NOT BOUND TO EXHAUST RECOURSES.
The other parties hereto shall not be bound to exhaust their
recourses against the Shareholder of which the Principal is the Principal or
the securities they may hold or to value such securities before requiring
payment or performance from the Principal in question.
ARTICLE 19
GENERAL CONTRACT PROVISIONS
19.1 SHARE CERTIFICATE LEGEND.
All share certificates of the Corporation shall have the
following legend endorsed thereon forthwith after the execution of this
Agreement and from time to time thereafter:
"The transfer of Common Shares represented by this
certificate is subject to a unanimous shareholders'
agreement dated October 26, 1999, as amended,
supplemented, restated, replaced or otherwise modified from
time to time, made between 724 Solutions Inc. and all of
its shareholders."
19.2 NOTICES.
All notices, requests, demands or other communications
(collectively, "Notices") by the terms hereof required or permitted to be
given by one party to any other party, or to any other person shall be given
in writing by personal delivery or by registered mail, postage prepaid, or by
facsimile transmission to such other party as follows:
(a) to the Founding Shareholder at:
c/o Blue Sky Capital Corporation
4101 Yonge Street
Suite 702
Toronto, Ontario
M2P 1N6
Attention: Greg Wolfond
Telecopier: (416) 226-4456
<PAGE>
- 86 -
(b) to BMO at:
Bank of Montreal
55 Bloor Street West, 3rd Floor
Toronto, Ontario
M4W 3N5
Attention: Lloyd Darlington
Chief Technology Officer
Telecopier: (416) 927-2594
with a copy to:
Bank of Montreal
Law Department
21st Floor
First Canadian Place
Toronto, Ontario
M5X 1A1
Attention: Vice-President, Law
Telecopier: (416) 867-7191
(c) to Bank of America at:
Bank of America
Interactive Banking Division Administration #10308
425 First Street
San Francisco, CA 94105
Attention: Michael A. Devico, Executive Vice President
Telecopier: (415) 278-7888
<PAGE>
-87-
with a copy to:
Bank of America
Office of the General Counsel
Bank of America Corporate Center
100 North Tryon Street
NC1-007-56-11
Charlotte, North Carolina
28255
Attention: Gerald P. Hurst, Associate General Counsel
Telecopier: (704) 386-6453
(d) to CSTC and Citicorp at:
Citicorp Strategic Technology Corporation
c/o Citicorp
909 Third Avenue
15th Floor
New York, N.Y.
10043 U.S.A.
Attention: William Carson and Alan Young
Telecopier: (212) 559-5250 and
(212) 793-3051
with a copy to:
Citigroup Inc.
Corporate Law Department
425 Park Avenue
New York, N.Y.
10043 U.S.A.
Attention: Stephen Dietz and Anita Romero
Telecopier: (212) 793-7600
<PAGE>
-88-
(e) to Sonera at:
Sonera Corporation
P. O. Box 106, FIN-00051 Sonera
Teollisuuskatu 15
FIN-00510
Helsinki, Finland
Attention: Paul Gardner
Telecopier: +358 (0) 2040 64661
(f) to WFC at:
444 Market Street
San Francisco, CA
17th Floor
San Francisco, CA
U.S.A. 94111
Attention: George Fehlhaber
Telecopier: (415) 975-7861
(g) with a copy to WFC at:
633 Folsom Street
San Francisco, CA
7th Floor
San Francisco, CA
U.S.A. 94107
Attention: Robert White
Telecopier: (415) 975-7861
(h) to FTV at:
Financial Technology Ventures, L.P.
Financial Technology Ventures (Q), L.P.
601 California Street
22nd Floor
San Francisco, California
U.S.A. 94108
Attention: Richard Garman
Telecopier: (415) 229-3005
<PAGE>
-89-
(i) to HSBC at:
HSBC Investment Bank plc
Vinters Place
68 Upper Thames Street
London, England
EC4V 3BJ
Attention: Tim Pennington
Telecopier: 011 44 20 7 336 3344
with a copy to:
HSBC Securities (Canada) Inc.
Box 67, Suite 5300
Toronto Dominion Centre
Toronto Dominion Bank Tower
Toronto, Ontario
M5K 1E7
Attention: Craig Cook
Telecopier: (416) 369-9498
(j) to the Management Shareholders: at their respective addresses
listed in the records of the Corporation;
(k) to the Non-Employee Directors: at their respective addresses
listed in the records of the Corporation;
(l) to the Employee Shareholders: at their respective addresses
listed the records of the Corporation;
(m) to the Corporation at:
724 Solutions Inc.
4101 Yonge Street
Suite 702
Toronto, Ontario
M2P 1N6
Attention: Christopher Erickson, President
Telecopier: (416) 226-4456
with a copy to:
<PAGE>
-90-
Goodman Phillips & Vineberg
250 Yonge Street
Suite 2400
Toronto, Ontario
M5B 2M6
Attention: Brian Ludmer
Telecopier: (416) 979-1234
or at such other address as may be given by such person to the other parties
hereto in writing from time to time. If any party bound hereby or any
Permitted Transferee of shares hereunder shall not have given the parties
hereto notice setting forth an address for the giving of Notices, the Notice
for such person shall be deemed to have been properly given if given in
accordance with the terms hereof as if given to the transferor(s) of such
shares.
All such Notices shall be deemed to have been received when
delivered or transmitted (or, if not delivered or transmitted during regular
business hours in Toronto on a business day, then on the next succeeding
business day) or, if mailed, 72 hours after 12:01 a.m. on the day following
the day of the mailing thereof. If any Notice shall have been mailed and if
regular mail service shall be interrupted by strikes or other irregularities,
such Notice shall be deemed to have been received 72 hours after 12:01 a.m.
on the day following the resumption of normal mail service, provided that
during the period that regular mail service shall be interrupted, all Notices
shall be given by personal delivery or by facsimile transmission.
19.3 DEEMED ADEQUATE NOTICE.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any Notice to be given by one or more members of the
Founding Shareholder to the other Shareholders or the
Corporation shall be deemed to be properly given and binding if
the Notice is given on behalf of the members of the Founding
Shareholder by a duly appointed representative of the Founding
Shareholder. For greater certainty, it is acknowledged by all
parties to this Agreement that this mechanism is to facilitate
the giving of Notices and the members of the Founding
Shareholder are not jointly and severally liable for any
obligations incurred by other members of the Founding
Shareholder unless expressly provided by this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement, any notice to be delivered to or consent to be
provided by the Employee Shareholders shall be satisfied by
delivery of notice to the Designated Representative (as
contemplated by the Stock Option Plan) or by the attaining of
the appropriate approval or consent or election from the
Designated Representative on behalf of such Employee
Shareholders (subject to the provisions of Section 4.7 hereof).
19.4 FURTHER ACTS.
The parties shall sign such further and other documents, cause
such meetings to be held, resolutions passed and by-laws enacted, exercise their
vote and influence, do and
<PAGE>
-91-
perform and cause to be done and performed such further and other acts and
things as may be necessary or desirable in order to give full effect to this
Agreement and every part hereof.
19.5 TIME.
Time shall be of the essence of this Agreement and of every
part hereof and no extension or variation of this Agreement shall operate as
a waiver of this provision.
19.6 ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties with respect to all of the matters herein, amending and restating the
October 19, 1999 Unanimous Shareholders' Agreement, and its execution has not
been induced by, nor do any of the parties rely upon or regard as material,
any representations or writings whatever not incorporated herein and made a
part hereof and may not be amended or modified in any respect except as
contemplated by Section 1.13 hereof or otherwise with the written consent of
the parties hereto. The Schedules referred to herein are incorporated herein
by reference and form part of this Agreement.
19.7 COUNTERPARTS.
This Agreement may be signed in counterparts (and sent by fax)
and each of such counterparts shall constitute an original document and such
counterparts, taken together, shall constitute one and the same instrument
and, notwithstanding their respective dates of execution, shall be deemed to
be executed as of October 26, 1999.
<PAGE>
19.8 ENUREMENT.
This Agreement shall enure to the benefit of and be binding
upon the parties and their respective heirs, executors, administrators,
successors, legal representatives and permitted assigns.
19.9 LANGUAGE.
The parties hereto have required that this Agreement and all
documents and notices related thereto and/or resulting therefrom be drawn up
in English. Les parties aux presentes ont exige que la presente convention
ainsi que tous les documents et avis qui s'y rattachent et/ou qui en
decouleront soient rediges en langue anglaise.
DATED as of the 26th day of October, 1999.
724 SOLUTIONS INC.
PER: /s/ Gregory Wolfand
-----------------------------
BLUE SKY CAPITAL CORPORATION 119079 ONTARIO INC.
PER: /s/ Gregory Wolfand PER: /s/ Gregory Wolfand
------------------------------ --------------------------
PER: ______________________________ PER: __________________________
BANK OF MONTREAL BANK OF AMERICA CORPORATION
PER: [illegible] PER: [illegible]
------------------------------ --------------------------
PER: __________________________
CITICORP STRATEGIC CITICORP
TECHNOLOGY CORPORATION
PER: /s/ William F. Carson PER: /s/ William F. Carson
------------------------------ --------------------------
William F. Carson William F. Carson
PER: ______________________________ PER: __________________________
<PAGE>
SONERA CORPORATION WFC HOLDINGS CORPORATION
PER: [illegible] PER: [illegible]
------------------------------ ---------------------------
NAME:
TITLE:
PER: _____________________________
FINANCIAL TECHNOLOGY FINANCIAL TECHNOLOGY VENTURES, L.P.,
VENTURES (Q), L.P., A DELAWARE LIMITED PARTNERSHIP
A DELAWARE LIMITED PARTNERSHIP
BY: BY:
FINANCIAL TECHNOLOGY FINANCIAL TECHNOLOGY
MANAGEMENT, L.L.C., MANAGEMENT, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY A DELAWARE LIMITED LIABILITY COMPANY
BY: /s/ ROBERT HURET BY: /s/ ROBERT HURET
------------------------------ -----------------------------
NAME: ROBERT HURET NAME: ROBERT HURET
TITLE: MANAGING MEMBER TITLE: MANAGING MEMBER
HSBC INVESTMENT BANK PLC.
PER: [illegible]
-------------------------------
PER: _______________________________
<PAGE>
SCHEDULE "1.1(f)"
DEFINITION OF ARM'S LENGTH
1. ARM'S LENGTH - For the purposes of this Agreement:
(a) "related persons" (as defined below) shall be deemed NOT to deal
with each other at arm's length; and
(b) it is a question of fact whether persons not related to each other
were at a particular time dealing with each other at arm's length.
2. DEFINITION OF "RELATED PERSONS" - For the purpose of this Schedule,
"related persons", or persons related to each other, are
(a) individuals connected by blood relationship, marriage or adoption;
(b) a corporation and
(i) a person who controls the corporation, if it is
"controlled" (as defined below) by one person,
(ii) a person who is a member of "related group" (as defined
below) that controls the corporation, or
(iii) any person related to a person described in
subparagraph (i) or (ii), and
(c) any two corporations
(i) if they are controlled by the same person or group of
persons,
(ii) if each of the corporations is controlled by one person
and the person who controls one of the corporations is
related to the person who controls the other corporation,
(iii) if one of the corporations is controlled by one person
and that person is related to any member of a related
group that controls the other corporation,
(iv) if one of the corporations is controlled by one person
and that person is related to each member of an unrelated
group that controls the other corporation,
(v) if any member of a related group that controls one of the
corporations is related to each member of an unrelated
group that controls the other corporation, or
(d) if each member of an unrelated group that controls one of the
corporations is related to at least one member of an unrelated
group that controls the other corporation.
<PAGE>
- 2 -
3. CORPORATIONS RELATED THROUGH A THIRD CORPORATION - Where two corporations
are related to the same corporation, be deemed to be related to each
other
4. RELATION WHERE AMALGAMATION OR MERGER - Where there has been an
amalgamation or merger of two or more corporations and the new
corporation formed as a result of the amalgamation or merger and any
predecessor corporation would have been related immediately before the
amalgamation or merger if the new corporation were in existence at that
time, and if the persons who were the shareholders of the new corporation
immediately after the amalgamation or merger were the shareholders of the
new corporation at that time, the new corporation and any such
predecessor corporation shall be deemed to have been related persons.
5. AMALGAMATION OF RELATED CORPORATIONS - Where there has been an
amalgamation or merger of 2 or more corporations each of which was
related (otherwise than because of a right referred to in
paragraph (5)(b)) to each other immediately before the amalgamation or
merger, the new corporation formed as a result of the amalgamation or
merger and each of the predecessor corporation is deemed to have been
related to each other.
6. DEFINITIONS CONCERNING GROUPS - In this Schedule,
"RELATED GROUP" means a group of persons each member of which is related
to every other member of the group;
"UNRELATED GROUP" means a group of persons that is not a related group.
7. CONTROL BY RELATED GROUPS, OPTIONS, ETC. - For the purposes of this
Schedule,
(a) where a related group is in a position to control a corporation,
it shall be deemed to be a related group that controls the
corporation, whether or not it is part of a larger group by which
the corporation is in fact controlled;
(b) where at any time a person has a right under a contract, in equity
or otherwise, either immediately or in the future and either
absolutely or contingently:
(i) to, or to acquire, shares of the capital stock of a
corporation or to control the voting rights of such
shares, the person shall, except where the right is not
exercisable at that time because the exercise thereof is
contingent on the death, bankruptcy or permanent
disability of an individual, be deemed to have the same
position in relation to the control of the corporation as
if the person owned the shares at that time,
(ii) to cause a corporation to redeem, acquire or cancel any
shares of its capital stock owned by other shareholders
of the corporation, the person shall, except where the
right is not exercisable at that time because the
exercise thereof is contingent on the death, bankruptcy
or permanent disability of an individual, be deemed to
have the same position in relation to the control of the
corporation as if the shares were so redeemed, acquired
or cancelled by the corporation at that time,
<PAGE>
- 3 -
(iii) to, or to acquire or control, voting rights in respect of
shares of the capital stock of a corporation, the person
is, except where the right is not exercisable at that
time because its exercise is contingent on the death,
bankruptcy or permanent disability of an individual,
deemed to have the same position in relation to the
control of the corporation as if the person could
exercise the voting rights at that time, or
(iv) to cause the reduction of voting rights in respect of
shares owned by other shareholders, of the capital stock
of a corporation, the person is, except where the right
is not exercisable at that time because its exercise is
contingent on the death, bankruptcy or permanent
disability of an individual, deemed to have the same
position in relation to the control of the corporation as
if the voting rights were so reduced at that time; and
(c) where a person owns shares in two or more corporations, the person
shall as shareholder of one of the corporations be deemed to be
related to himself, herself or itself as shareholder of each of
the other corporations.
8. BLOOD RELATIONSHIP, ETC. - For the purposes of this Schedule, persons are
connected by
(a) blood relationship if one is the child or other descendant of the
other or one is the brother or sister of the other;
(b) marriage if one is married to the other or to a person who is so
connected by blood relationship to the other; and
(c) adoption if one has been adopted, either legally or in fact, as
the child of the other or as the child of a person who is so
connected by blood relationship (otherwise than as a brother or
sister) to the other.
9. EXTENDED MEANING OF "CHILD" - In this Schedule, words referring to a
child of a person include:
(a) a person of whom the individual is the natural parent, whether the
person was born within or outside marriage;
(b) a person who is wholly dependent on the individual for support and
of whom the individual has, or immediately before the person
attained the age of 19 years had, in law or in fact, the custody
and control;
(c) a child of the individual's spouse;
(d) an adopted child of the individual; and
(e) a spouse of a child of the individual.
<PAGE>
- 4 -
10. RELATIONSHIPS - In this Schedule, words referring to
(a) a parent of an individual include a person
(i) whose child the individual is,
(ii) whose child the individual had previously been, or
(iii) who is a parent of the individual's spouse;
(b) a brother of an individual includes a person who is
(i) the brother of the individual's spouse, or
(ii) the spouse of the individual's sister;
(c) a sister of an individual includes a person who is
(i) the sister of the individual's spouse, or
(ii) the spouse of the individual's brother;
(d) a grandparent of an individual includes a person who is
(i) the grandfather or grandmother of the individual's
spouse, or
(ii) the spouse of the individual's grandfather or
grandmother;
(e) an aunt or great-aunt of an individual includes the spouse of the
individual's uncle or great-uncle, as the case may be;
(f) an uncle or great-uncle of an individual includes the spouse of
the individual's aunt or great-aunt, as the case may be; and
(g) a niece or nephew of an individual includes the niece or nephew,
as the case may be, of the individual's spouse.
11. CONTROL IN FACT - For the purposes of this Schedule, where the expression
"controlled, directly or indirectly in any manner whatever," is used, a
corporation shall be considered to be so controlled by another
corporation, person or group of persons (in this Section referred to as
the "controller") at any time where, at that time, the controller has any
direct or indirect influence that, if exercised, would result in control
in fact of the corporation, except that, where the corporation and the
controller are dealing with each other at arm's length and the influence
is derived from a franchise, licence, lease, distribution, supply or
management agreement or other similar agreement or arrangement, the main
purpose of which is to govern the relationship between the corporation
and the controller regarding the manner in which a business carried on by
the corporation is to be conducted, the corporation shall not be
considered to be controlled,
<PAGE>
- 5 -
directly or indirectly in any manner whatever, by the controller
by reason only of that agreement or arrangement.
12. EXCEPTION TO CONTROL IN FACT - For the purposes of this Schedule, where a
corporation (in this subsection referred to as the "controlled
corporation") would, but for this subsection, be regarded as having been
controlled or controlled, directly or indirectly in any manner whatever,
by a person or partnership (in this subsection referred to as the
"controller") at a particular time and it is established that
(a) there was in effect at the particular time an agreement or
arrangement enforceable according to the terms thereof, under
which, on the satisfaction of a condition or the happening of an
event that it is reasonable to expect will be satisfied or happen,
the controlled corporation will
(i) cease to be controlled, or controlled, directly or
indirectly in any manner whatever, as the case may be, by
the controller, and
(ii) be or become controlled, or controlled, directly or
indirectly in any manner whatever, as the case may be, by
a person or group of persons, with whom or with each of
the members of which, as the case may be, the controller
was at the particular time dealing at arm's length, and
(b) the purpose for which the controlled corporation was at the
particular time so controlled, or controlled, directly or
indirectly in any manner whatever, as the case may be, was the
safeguarding of rights or interests of the controller in respect
of:
(i) any indebtedness owing to the controller the whole or any
part of the principal amount of which was outstanding at
the particular time, or
(ii) any shares of the capital stock of the controlled
corporation that were owned by the controller at the
particular time and that were, under the agreement or
arrangement, to be redeemed by the controlled corporation
or purchased by the person or group of persons referred
to in subparagraph 12(a)(ii),
the controlled corporation is deemed not to have been controlled
by the controller at the particular time.
<PAGE>
SCHEDULE "1.1(gg)"
SERIAL NO: W-1 WARRANT TO PURCHASE
333,334 COMMON SHARES
WARRANT TO PURCHASE 333,334 COMMON SHARES OF
724 SOLUTIONS INC.
AT U.S. $15.00 PER COMMON SHARE
THIS IS TO CERTIFY THAT, for value received, HSBC Investment Bank plc.
(the "Holder") is entitled to purchase from 724 Solutions Inc., a corporation
amalgamated under the laws of the Province of Ontario (the "Company"), at any
time or from time to time after the Commencement Date (as defined in the
Terms and Conditions attached hereto) and prior to 4:00 p.m. (Toronto time)
on the Expiry Date (as defined in such Terms and Conditions) at its offices
at 4101 Yonge Street, Suite 702, Toronto, Ontario, Canada, M2P 1N6, 333,334
common shares in the capital of the Company ("Common Shares") at a purchase
price of U.S. $15.00 per Common Share, upon and in accordance with the Terms
and Conditions attached hereto.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed by
its duly authorized officer in that behalf as of the 26th day of October,
1999.
724 SOLUTIONS INC.
Per:___________________________________
Name: Karen Basian
Title: Chief Financial Officer
NOTE: THIS SHARE PURCHASE WARRANT WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED ON OR BEFORE THE EXPIRY DATE PROVIDED FOR IN PARAGRAPH 3.2 OF THE
TERMS AND CONDITIONS ATTACHED HERETO.
<PAGE>
ARTICLE 1 - TERMS AND CONDITIONS
1.1 EXERCISE OF WARRANT
Subject to the provisions of Article 3 hereof, to exercise this Warrant
("Warrant"), the Holder shall deliver to the Company at its aforementioned
office:
(a) mthis Warrant;
(b) a written notice, in substantially the form of the subscription
notice attached as an exhibit hereto (the "Subscription Notice") of
the Holder's election to exercise this Warrant in whole;
(c) cash, a certified cheque, money order or wire payable to the Company
in the amount of the purchase price of the Common Shares so purchased;
and
(d) evidence reasonably satisfactory to the Company that the Warrant is
being exercised by the Holder.
The Company shall, as soon as practicable and in any event within 14
days thereafter, execute and deliver or cause to be delivered a certificate
representing the aggregate number of Common Shares specified in the
Subscription Notice. The share certificates so delivered shall be issued in
the name of the Holder or its affiliate, subject to the terms and provisions
of that certain amended and restated Shareholders' Agreement dated October
26, 1999 among 724 and its shareholders (the "U.S.A."). Such certificates
shall be deemed to have been issued and the Holder, or other person
designated, shall be deemed for all purposes to have become the holder of
record of the Common Shares as of the date of receipt by the Company of the
Subscription Notice and purchase price thereof. For greater certainty, any
person designated by the Holder to be the holder of record of the Common
Shares issued upon the exercise of rights of the Holder hereunder must be a
Permitted Transferee of the Holder (as such term is defined in the U.S.A.).
1.2 COMMON SHARES PURCHASABLE
The number of Common Shares purchasable under this Warrant shall be
333,334 Common Shares.
The Common Shares issued upon the exercise of this Warrant shall, upon
payment in full therefor being made, be validly issued as fully paid and
non-assessable.
1.3 NO PARTIAL EXERCISE
If the Holder elects to exercise this Warrant, the Holder must exercise
the Warrant in full by electing to purchase not less than 333,334 Common
Shares in accordance with these Terms and Conditions.
1.4 STOCK SPLITS
In the event of any subdivision, redivision or change of the Common
Shares of the Company into a greater number of Common Shares at any time
while this Warrant is outstanding, the Company shall thereafter deliver, at
the time of purchase of the Common Shares pursuant to the terms of the
Warrant, in lieu of the number of Common Shares in respect of
<PAGE>
- 2 -
which the right to purchase is then being exercised, such greater number of
Common Shares of the Company as would result from said subdivision,
redivision or change had the right of purchase been exercised before such
subdivision, redivision or change.
1.5 STOCK CONSOLIDATIONS
In the event of any consolidation of the Common Shares of the Company
into a lesser number of Common Shares at any time while this Warrant is
outstanding, the Company shall thereafter deliver and the Holder shall
accept, at the time of purchase of the Common Shares pursuant to the terms of
the Warrant, in lieu of the number of Common Shares in respect of which the
right to purchase is then being exercised, such lesser number of Common
Shares of the Company as would result from such consolidation had the right
of purchase been exercised before such consolidation.
1.6 RECLASSIFICATIONS
In the event of any reclassification of the Common Shares of the Company
resulting from, but not being limited to, the payment of a stock dividend
other than dividends in the ordinary course, a capital reorganization or
amalgamation of the Company with another corporation, at any time while this
Warrant is outstanding, the Company shall thereafter deliver at the time of
purchase of Common Shares pursuant to the terms of the Warrant the number of
Common Shares of the Company or of the appropriate class or classes resulting
from such reclassification as the Holder would have been entitled to receive
in lieu of the number of Common Shares in respect of which the right of
purchase is then being exercised, such number and class of securities as
would have been issued to the Holder upon such reclassification had the right
of purchase been exercised before such reclassification.
1.7 PRICE ADJUSTMENT
(a) If an event occurs which would require an adjustment or
readjustment as prescribed in sections 1.4 to 1.6 (inclusive)
hereof, the purchase price per Common Share or per security of
another class shall be adjusted so that the total purchase price of
all shares or securities which may be purchased pursuant to this
Warrant would equal the total purchase price of the Common Shares
which have been purchased pursuant to this Warrant prior to the
occurrence of such event.
(b) All rights and readjustments prescribed in sections 1.4 to 1.6
(inclusive) hereof shall be cumulative.
ARTICLE 2 - MISCELLANEOUS PROVISIONS
2.1 TRANSFER
This Warrant may not be transferred, assigned or a security interest
granted therein. This Warrant may be exercised only by the named Holder on
the face page of the Warrant. Notwithstanding the foregoing, this Warrant may
be transferred to an affiliate of Holder to the extent and in the manner
permitted by the U.S.A.
<PAGE>
- 3 -
2.2 REGULATORY REQUIREMENTS
If the exercise of, existence of, or any terms or conditions of this
Warrant would conflict with any applicable regulatory requirements pertaining
to any public offering of the Company's securities, (including a refusal of
the United States Securities and Exchange Commission, The Toronto Stock
Exchange or the NASDAQ to permit the timely completion of such public
offering or the listing of such securities) then the Holder agrees to work
with the Company and such regulator in good faith to resolve the concerns
raised, including, as and if required, by amending any terms or conditions of
this Warrant so as to permit such offering or listing to be completed on a
timely basis. Nothing in this section shall require the Holder to amend the
purchase price or the number of Common Shares purchasable under this Warrant.
The Company further agrees to use its best efforts to resolve any such
concerns with such regulator through means other than by amending the terms
or conditions of this Warrant.
ARTICLE 3 - TERM OF THE WARRANT
3.1 COMMENCEMENT OF EXERCISE RIGHTS
All rights of subscription under this Warrant shall apply only from and,
subject to Section 3.2 hereof, after the date on which a technology license
agreement or a letter of intent with respect thereto has been entered into,
upon mutually acceptable terms, between the Company and the Holder (or its
affiliate) pursuant to which the Holder (or its affiliate) will license, or
agree to license, the Company's banking and brokerage technology
applications. For greater certainty, neither the Company nor HSBC shall be
obligated to compromise its economic or other requirements concerning such
technology license agreement, notwithstanding that this Warrant may be "in
the money".
3.2 EXPIRY OF RIGHTS
Unless otherwise agreed to in writing by the Company pursuant to section
1.20 of the U.S.A., after 4:00 p.m. (Toronto time) on December 31,
1999 (the "Expiry Date") all rights under this Warrant shall wholly
cease and determine and this Warrant shall be wholly void and of no
value or effect.
ARTICLE 4 - GENERAL CONTRACT PROVISIONS
4.1 ENTIRE AGREEMENT
This Warrant and the subscription agreement entered into between the
Company and the Holder dated as of the date hereof pursuant to which the
Company issued this Warrant, contains the entire agreement between the Holder
and the Company with respect to the subject matter hereof and supersedes all
prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
<PAGE>
- 4 -
4.3 WAIVER AND AMENDMENT
Subject to the provisions of the U.S.A., any term or provision of this
Warrant may be waived at any time by the party entitled to the benefits
thereof and any term or provision of this Warrant may be amended or
supplemented at any time by agreement of the Holder and the Company, except
that any waiver of any term or condition, or any amendment or supplementation
of this Warrant, must be in writing. A waiver of any breach or failure to
enforce any of the terms or conditions of this Warrant shall not, in any way,
affect or limit or act as a waiver of the parties' rights hereunder at any
time to enforce strict compliance thereafter with any term or condition of
this Warrant.
4.4 FILING OF WARRANT
A copy of this Warrant shall be filed in the minute book and among the
records of the Company.
4.5 LOSS, DESTRUCTION, ETC. OF WARRANT
Upon receipt of evidence satisfactory to the Company of loss, theft,
mutilation or destruction of this Warrant and, in the case of any such loss,
theft or destruction, upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Company or, in the event of
such mutilation, upon surrender and cancellation of the Warrant, the Company
will make and deliver a new Warrant of like tenor in lieu of such lost,
stolen, mutilated or destroyed Warrant.
<PAGE>
EXHIBIT
SUBSCRIPTION NOTICE
SHARE PURCHASE WARRANT
724 SOLUTIONS INC.
The undersigned holder of a Share Purchase Warrant issued by 724
Solutions Inc. (the "Company") dated as of October 26, 1999 (the "Warrant"),
hereby elects to purchase Common Shares of the Company (the "Purchased Common
Shares") at the subscription price and upon the terms and conditions provided
therein. The undersigned has returned the Warrant to the Company, and has
tendered cash, a certified cheque or a money order in the amount of
US$5,000,000.00 payable to the Company or wired such amount to the Company in
respect of the Purchased Common Shares and hereby instructs the Company to
issue the certificate representing the Common Shares in the name of the
undersigned at the address below.
DATED the ____________ day of ____________________________ 1999.
_______________________________________
(signature of holder)
_______________________________________
Name of Holder (please print)
Address
_______________________________________
_______________________________________
_______________________________________
<PAGE>
SCHEDULE "4.9"
ARBITRATION PROCEDURES
----------------------
1.0 DISPUTES COVERED BY THESE RULES. The disputes to be covered by the
provisions of these Rules of Procedures (the "Rules") are those disputes
referred to in Section 4.9 of the Agreement to which this Schedule "4.9" is
attached and which arise out of or relate to or are in connection with any of
the formation, interpretation, application, operation, and enforcement of the
Agreement.
1.1 EXCLUSIVE JURISDICTION. Subject to the provisions of Section 1.4
(Governing Law) of the Agreement, it shall be a condition precedent to the
bringing of any legal proceedings with respect to any dispute arising out of,
or relating to, or in connection with, any of the formation, interpretation,
application, operation and enforcement of the Agreement and provided that the
settlement procedures set forth in Section 4.9 of the Agreement has been
pursued, that the settlement procedure provided for in these Rules shall have
been followed and completed.
1.2 APPOINTMENT OF ARBITRATION BOARD
(a) If any party to the Agreement (a "Party") wishes to have any matter
under this Agreement arbitrated in accordance with the provisions of
this Agreement, it shall give notice ("Arbitration Notice") to the
other Parties specifying particulars of the matter or matters in
dispute and proposing the name of its nominee.
(b) Arbitration shall be carried out by an Arbitration Board of three
persons. If the Parties agree in writing, the Arbitration Board may be
composed of a single arbitrator.
(c) Each side to the dispute being arbitrated in accordance with these
procedures, shall select an independent arbitrator as selected in
accordance with paragraph (d), and then each of the two arbitrators
shall select a third independent arbitrator. If the two arbitrators
cannot agree to a mutually acceptable third independent arbitrator,
who is willing to act, within 15 days of the giving of the Arbitration
Notice, either Party may request an Ontario court of competent
jurisdiction to do so. Any Party may request that such court, before
making such appointment, consult with the President of the Computer
Law Association as to the identity of suitable nominees as Arbitration
Board.
(d) No member of the Arbitration Board may be a director, officer, an
employee or shareholder of any Party or of any affiliate or associate of
such Party or any associate of any such director, officer, employee or
shareholder or any other person who has a direct financial interest in
such Party or in any associate or affiliate of such Party or of a
director, officer, employee, or shareholder of such Party or who has a
direct financial interest in the matter in dispute. The terms
"associate" and "affiliate" shall have the respective meanings ascribed
to such terms by the BUSINESS CORPORATIONS ACT (Ontario) on the date
hereof.
(e) Subject to Section 1.7, the expenses of the Arbitration Board shall be
borne equally by the Parties.
<PAGE>
1.3 QUALIFICATIONS OF ARBITRATION BOARD. The Arbitration Board shall
consist of three individuals, one of which shall have not less than 10 years
experience as a licensed practising corporate or securities lawyer, and one
of which shall have not less than 10 years experience in or with investment
or merchant banking for the computer software industry. If the Arbitration
Board consists of only one person, as agreed by the Parties, then the sole
arbitrator shall have not less than 10 years experience in or with corporate
or securities law with significant exposure to the computer software industry
during the previous 5 years and must have acted as an arbitrator or mediator
within the previous 5 years. Without limiting the generality of the
foregoing, the Arbitration Board shall be at arm's length from both Parties
and no member of the Arbitration Board shall be a member of the audit or
legal firm or firms who advise either Party, nor shall he/she be a person who
is otherwise regularly retained by such Parties.
1.4 SUBMISSION OF WRITTEN STATEMENTS
(a) Within 20 days of the appointment of the Arbitration Board, the Party
initiating the arbitration (the "Claimant") shall send the other Parties
(collectively, the "Respondent") a Statement of Claim setting out in
sufficient detail the facts and any contentions of law on which it
relies, and the relief that it claims.
(b) Within 20 days of the receipt of the Statement of Claim, the Respondent
shall send the Claimant a Statement of Defence stating in sufficient
detail which of the facts and contentions of law in the Statement of
Claim it admits or denies, on what grounds, and on what other facts and
contentions of law he relies.
(c) Within 20 days of receipt of the Statement of Defence, the Claimant may
send the Respondent a Statement of Reply.
(d) All Statements of Claim, Defence and Reply shall be accompanied by
copies (or, if they are especially voluminous, lists) of all essential
documents on which the Party concerned relies and which have not
previously been submitted by any Party, and (where practicable) by any
relevant samples.
(e) After submission of all the Statements, the Arbitration Board will give
directions for the further conduct of the arbitration.
1.5 MEETINGS AND HEARINGS
(a) The arbitration shall take place in the Municipality of Metropolitan
Toronto, Ontario or in such other place as the Claimant and the
Respondent shall agree upon in writing. The arbitration shall be
conducted in English unless otherwise agreed by such Parties and the
Arbitration Board. Subject to any adjournments which the Arbitration
Board allows, the final hearing will be continued on successive working
days until it is concluded.
(b) All meetings and hearings will be in private unless the Parties
otherwise agree.
(c) Any Party may be represented at any meetings or hearings by legal
counsel.
(d) Each Party may examine, cross-examine and re-examine all witnesses at
the arbitration.
<PAGE>
1.6 POWERS OF ARBITRATOR. By submitting a dispute to settlement under
these Rules, the Parties shall be taken to have conferred on the Arbitration
Board the following jurisdiction and powers, to be exercised by the
Arbitration Board so far as the relevant law allows, and in its absolute and
unfettered discretion, if the Arbitration Board shall judge it to be
expedient for the purpose of ensuring the just, expeditious, economical and
final determination of the dispute. The Arbitration Board shall have
jurisdiction to:
(a) determine any question of fact and law;
(b) determine any question as to its own jurisdiction;
(c) determine any question of good faith, dishonesty or fraud arising in the
dispute;
(d) order any Party to furnish such further details of the Party's case, in
fact or in law, as it may require;
(e) proceed notwithstanding the failure or refusal of any Party to comply
with these Rules or with its orders or directions, or to attend any
meeting or hearing, but only after giving that Party written notice that
it intends to do so;
(f) order the Parties to produce to the Arbitration Board, and to each
other for inspection, and to supply copies of, any documents in their
possession or power which it determines to be relevant.
Notwithstanding the foregoing, the Arbitration Board shall allow
discovery only to the extent of a single request for production of
documents; oral depositions or other discovery requests shall not be
permitted unless the Arbitration Board finds and informs the Parties
that denial of such requests would be manifestly unjust;
(g) receive and take into account such written or oral evidence as it shall
determine to be relevant, whether or not strictly admissible in law;
(h) hold meetings and hearings (at which the Parties may be represented by
legal counsel) and consider written and oral evidence and make his/her
award (including any interim award considered necessary by the
Arbitration Board, and the final award) in Ontario, and, with the
concurrence of the Parties thereto, elsewhere; and
(i) make any other interim or final orders which it considers to be
appropriate in all the circumstances for any of the above purposes.
In addition, the Arbitration Board shall have such further jurisdiction and
powers as may be allowed to it by the INTERNATIONAL COMMERCIAL ARBITRATIONS ACT
(Ontario), the Agreement, the specific submission referred to herein, the Rules
of the Institute and the arbitral laws of any place in which it holds hearings
or in which witnesses attend, and of any place in which it gives any directions
or makes any orders or any award.
1.7 THE AWARD. The Arbitration Board shall include in its award an order as
to the payment of the costs of the proceedings and reasonable counsel fees, and,
subject to the discretion of the Arbitration Board, costs will follow success
unless, in the opinion of the Arbitration Board, there
<PAGE>
is a compelling reason to depart from such result. Any Party ordered to pay
costs may avail itself of any procedure for the taxing of costs, provided,
however, that the Parties specifically agreed that the officer taxing such
costs need not be bound by any statutory scale of costs.
The Arbitration Board will make its decision in writing and, unless the
Parties otherwise agree, the Arbitration Board's reasons will be set out in
the award. The Arbitration Board will send such award to the Parties as soon
as practicable after the conclusion of the proceedings. The award shall be
final and binding on the Parties and shall not be subject to any appeal or
review procedure whatsoever, provided that the Arbitration Board followed the
Rules in good faith. The Arbitration Board shall reconsider its findings
once at the request and expense of a Party, but in such event shall limit the
Parties to a single memorandum stating any relevant new evidence, points and
authorities, unless doing so would be manifestly unjust.
1.8 ACCESS TO COURTS FOR ENFORCEMENT AND INTERIM REMEDIES. The Parties
consent to the award of the Arbitration Board being entered in any Court
having jurisdiction for the purposes of enforcement. In addition, if it
appears to any Party that the Arbitration Board lacks the power to give
effective interim relief, such Party may apply to any appropriate Court for
such relief.
1.9 CONFIDENTIALITY. All meetings and hearings of or by the Arbitration
Board shall be in private. All matters in dispute, all claims, submissions,
evidence and findings, and the award itself (collectively, the "Information")
shall be kept confidential by the Arbitration Board, and no information
regarding any of the foregoing will be released to any third party or
otherwise made public without the written consent of the Parties, except as
otherwise contemplated herein and except for such information which is not
Confidential Information.
<PAGE>
SCHEDULE "6.2"
ACKNOWLEDGEMENT OF ASSUMPTION OF OBLIGATIONS
--------------------------------------------
TO: 724 Solutions Inc. (the "Corporation")
AND TO: [LIST OF PERSONS BOUND BY SHAREHOLDERS' AGREEMENT] (the
"Parties")
RE: Unanimous Shareholders' Agreement dated as of October 26, 1999
(the "Shareholders' Agreement") concerning 724 Solutions Inc.
(the "Corporation")
WHEREAS pursuant to the terms of the Shareholders' Agreement
there can be no transfer of any of the shares of the Corporation except in
certain circumstances and unless the transferee of such shares first enters
into this Assumption Agreement;
AND WHEREAS [-] (the "Transferor") proposes to transfer [-]
shares of the Corporation (the "Shares") to [-] (the "Transferee");
AND WHEREAS the Transferee has agreed to observe and to be
bound by the terms of the Shareholders' Agreement so that the provisions
thereof will govern the rights and obligations among the Parties and the
parties hereto regarding the organization and affairs of the Corporation and
the sale of shares of the Corporation under certain circumstances and the
Transferor has agreed to guarantee the due performance by the Transferee of
all obligations imposed on the Transferor or Transferee pursuant to the
Shareholders' Agreement and to remain liable as principal debtor in respect
of all such obligations;
NOW THEREFORE for good and valuable consideration, the receipt
and sufficiency of which is hereby irrevocably acknowledged, the undersigned,
intending to be legally bound hereby, hereby covenants and agrees as follows:
1. The Transferee acknowledges that the foregoing recitals are
true and correct and acknowledges having received and reviewed a copy of the
Shareholders' Agreement.
2. The Transferee covenants and agrees to be bound by the terms of
the Shareholders' Agreement in the same manner as if the Transferee had been
an original party thereto and to the same extent as the Transferor.
3. The Transferee hereby represents and warrants that he is
purchasing the Shares as principal, for his own account and not as agent,
trustee or representative for any other person, except as may be disclosed in
Section 5 below.
4. If the Transferee is a corporation, the Transferee hereby
covenants, represents and warrants as follows:
(a) the Transferee is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and is qualified to
<PAGE>
do business and is in good standing in each jurisdiction in
which it carries on business;
(b) the Transferee has all necessary corporate power, authority and
approval to enter into this Assumption Agreement and to perform
its obligations hereunder;
(c) all necessary corporate action has been taken by the Transferee
to authorize the execution and delivery of this Assumption
Agreement and the performance of its obligations hereunder, and
this Assumption Agreement has been duly executed and delivered
by the Transferee and constitutes a legal, valid and binding
obligation of the Transferee enforceable against it in
accordance with its terms and the terms of the Shareholders'
Agreement; and
(d) neither the execution and delivery of this Assumption Agreement
by the Transferee, nor the performance of its obligations
hereunder, will conflict with or result in the violation,
contravention or breach of, or any default under, any of the
terms or provisions of the constating documents or by-laws of
the Transferee or of any agreement, obligation, contract,
commitment, law or regulation to which the Transferee is a
party or by which it is bound.
(e) (i) the shares and securities in its capital listed below
are the only issued and outstanding shares and
securities convertible into shares in its capital, all
of which are free and clear of all claims, liens and
encumbrances whatsoever (except as permitted by the
Shareholders' Agreement):
SECURITYHOLDER NUMBER AND CLASS OF
SHARES OR SECURITIES
CONVERTIBLE INTO SHARES
--------------------- -----------------------
- -
and
(ii) no person has any agreement or option or right capable of
becoming an agreement for the purchase of any such
outstanding shares or securities;
(f) the aforementioned shareholders or security holders are,
[EXCEPT AS INDICATED BELOW], the legal and beneficial owners of
the number and class of shares and/or securities indicated
opposite their respective names;
(g) no person has any agreement or option or right capable of
becoming an agreement for the purchase, subscription or
issuance of any of the unissued shares in its capital or any
securities convertible into shares in its capital;
<PAGE>
(h) [NOT APPLICABLE TO THE FOUNDING SHAREHOLDER, OR THE STRATEGIC
PARTNERS] the Transferee is not a non-Canadian within the meaning
of the INVESTMENT CANADA ACT, S.C. 1985, c. 20, as amended; and
(i) each of the undersigned who are shareholders or security holders
of the Transferee acknowledges and agrees that he shall be bound
by the Shareholders' Agreement as if he had been an original
signatory thereto.
5. If the Transferee is a trust, the Transferee hereby represents
and warrants that the current trustees and vested beneficiaries of the
Transferee (the "Trust") are as follows:
(a) [-] [LIST OF TRUSTEES AND BENEFICIARIES];
(b) annexed hereto is a true copy of the Declaration of Trust
establishing the Trust and such document has not been amended or
superseded since the establishment of the Trust [EXCEPT AS
INDICATED BELOW]; and
(c) [NOT APPLICABLE TO THE FOUNDING SHAREHOLDER, OR THE STRATEGIC
PARTNERS] neither the Transferee nor each of the undersigned
other than the Transferee is a non-Canadian within the meaning
of the INVESTMENT CANADA ACT, S.C. 1985, c. 20 as amended.
6. In consideration of the transfer of the Shares, the Transferee hereby
irrevocably appoints [INSERT NAME OF TRANSFEROR OR, IF SUCH TRANSFEROR WAS NOT
AN ORIGINAL SIGNATORY OF THE SHAREHOLDERS' AGREEMENT, THEN INSERT NAME OF
FORMER HOLDER OF THE SHARES WHO WAS AN ORIGINAL SIGNATORY] (the "Attorney") its
attorney in accordance with the POWERS OF ATTORNEY ACT (Ontario), with full
power of substitution, to do certain acts and execute certain instruments as
hereinafter set out:
(a) to represent and vote all of the Shares now or hereafter
registered in its name on the books of the Corporation on any and
all matters in respect of which a holder of the Shares shall have
the right to vote and which may properly come before any annual
and/or special meetings of shareholders of the Corporation
including, without limitation, any meetings of the holders of a
class of shares in the capital of the Corporation, or any
adjournment of any such meeting, and for that purpose to sign and
execute proxies or other instruments in its name or on its behalf;
and
(b) in respect of the Shares, to consent in writing in its name and
on its behalf to all proposed shareholders' resolutions and
actions or any by-law of the Corporation to be passed by
consent in writing by the Shareholders of the Corporation,
whether or not in lieu of a meeting.
Such power of attorney is acknowledged to be a power coupled with an interest,
given for consideration and cannot be revoked without the consent of the
Attorney. The Transferee further irrevocably undertakes to ratify and confirm
all that the Attorney (or any substitute therefor) may do by virtue of this
power of attorney, provided that the Attorney (or substitute) acts within the
authority hereby conferred.
<PAGE>
7. All notices, requests, demands or other communications
(collectively, "Notices") by the terms of the Shareholders' Agreement required
or permitted to be given by one party to any other shall be given to the
Transferee in accordance with the terms of the Shareholders' Agreement, at:
[NAME OF PARTY] at:
Telecopier Number:
8. Unless specifically defined herein or unless the context
otherwise requires, terms used herein which are defined in the Shareholders'
Agreement shall have the meanings ascribed to such terms in the Shareholders'
Agreement.
9. This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein and shall be binding upon the undersigned and their heirs, executors,
administrators, successors, permitted assigns and legal representatives. The
undersigned hereby submit to the exclusive jurisdiction of the Courts of the
Province of Ontario in connection with this Acknowledgement, on the terms set
out in Section 1.4 of the Shareholders' Agreement.
IN WITNESS WHEREOF the undersigned has duly executed this
Assumption Agreement [AS OF] the - day of -, 199-.
SIGNED, SEALED AND DELIVERED ) [SIGNATURE OF INDIVIDUAL TRANSFEREE, DULY
) AUTHORIZED OFFICER OF CORPORATE TRANSFEREE
in the presence of ) OR TRUSTEE(S) OF TRANSFEREE TRUST
)
________________________________ ) _________________________________________
(SIGNATURE OF WITNESS) )
)
)
) [SIGNATURES OF SHAREHOLDERS AND SECURITY
) HOLDERS OF CORPORATE TRANSFEREE
)
)
________________________________ ) _________________________________________
(NAME OF WITNESS) )
) [SEAL REQUIRED DUE TO POWER OF ATTORNEY]
- PLEASE PRINT) )
)
)
)
________________________________ ) _________________________________________
(ADDRESS OF WITNESS) )
)
<PAGE>
SCHEDULE "11.4"
ACKNOWLEDGEMENT OF ASSUMPTION OF OBLIGATIONS
TO: 724 Solutions Inc. (the "Corporation")
AND TO: [LIST OF PERSONS BOUND BY SHAREHOLDERS' AGREEMENT] (the "Parties")
RE: Unanimous Shareholders' Agreement dated as of October 26, 1999
(the "Shareholders' Agreement") concerning 724 Solutions Inc. (the
"Corporation")
WHEREAS pursuant to the terms of the Shareholders' Agreement there
can be no issuance of any securities of the Corporation except in certain
circumstances and unless the person to whom securities are to be issued first
enters into this Assumption Agreement;
AND WHEREAS the Corporation proposes to issue [-] [SECURITIES] of
the Corporation (the "Securities") to [-] (the "New Shareholder");
AND WHEREAS the New Shareholder has agreed to observe and to be
bound by the terms of the Shareholders' Agreement so that the provisions thereof
will govern the rights and obligations among the Parties and the parties hereto
regarding the organization and affairs of the Corporation and the sale of
securities of the Corporation under certain circumstances;
NOW THEREFORE for good and valuable consideration, the receipt and
sufficiency of which is hereby irrevocably acknowledged, the undersigned,
intending to be legally bound hereby, hereby covenants and agrees as follows:
1. The New Shareholder acknowledges that the foregoing recitals are
true and correct and acknowledges having received and reviewed a copy of the
Shareholders' Agreement.
2. The New Shareholder covenants and agrees to be bound by the terms
of the Shareholders' Agreement in the same manner as if the New Shareholder had
been an original party thereto.
3. The New Shareholder hereby represents and warrants that he is
purchasing the Securities as principal, for his own account and not as agent,
trustee or representative for any other person, except as may be disclosed in
section 5 below.
4. If the New Shareholder is a corporation, and acknowledges that the
other parties to the Shareholders Agreement are and shall be entitled to
continue to rely upon such representations and warranties:
(a) the New Shareholder is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and is qualified to do business and is in
good standing in each jurisdiction in which it carries on
business;
<PAGE>
(b) the New Shareholder has all necessary corporate power, authority
and approval to enter into this Agreement and to perform its
obligations hereunder;
(c) all necessary corporate action has been taken by the New
Shareholder to authorize the execution and delivery of this
Assumption Agreement and the performance of its obligations
hereunder, and this Assumption Agreement has been duly executed
and delivered by the New Shareholder and constitutes a legal,
valid and binding obligation of the New Shareholder enforceable
against it in accordance with its terms and the terms of the
Shareholders' Agreement; and
(d) neither the execution and delivery of this Assumption Agreement by
the New Shareholder, nor the performance of its obligations
hereunder, will conflict with or result in the violation,
contravention or breach of, or any default under, any of the terms
or provisions of the constating documents or by laws of the New
Shareholders or of any agreement, obligation, contract,
commitment, law or regulation to which the New Shareholder is a
party or by which it is bound.
(e) (i) the shares and securities in its capital listed below are
the only issued and outstanding shares and securities
convertible into shares in its capital, all of which
are free and clear of all claims, liens and
encumbrances whatsoever (except as permitted by the
Shareholders' Agreement):
SECURITYHOLDER NUMBER AND CLASS OF
SHARES OR
SECURITIES
CONVERTIBLE INTO
SHARES
----------------------- ---------------------
- -
and
(ii) no person has any agreement or option or right capable of
becoming an agreement for the purchase of any such
outstanding shares or securities;
(f) the aforementioned shareholders or securityholders are, [EXCEPT AS
INDICATED BELOW], the legal and beneficial owners of the number
and class of shares and/or securities indicated opposite their
respective names;
(g) no person has any agreement or option or right capable of becoming
an agreement for the purchase, subscription or issuance of any of
the unissued shares in its capital or any securities convertible
into shares in its capital;
(h) [EXCEPT IN THE CASE OF THE FOUNDING SHAREHOLDER, AND THE STRATEGIC
PARTNERS] the New Shareholder is not a non-Canadian within the
meaning of the INVESTMENT CANADA ACT, S.C. 1985, c. 20, as
amended; and
<PAGE>
(i) each of the undersigned who are shareholders or security holders
of the New Shareholder acknowledges and agrees that he shall be
bound by the Shareholders' Agreement as if he had been an original
signatory thereto.
5. If the New Shareholder is a trust, the New Shareholder hereby
represents and warrants that the current trustees and vested beneficiaries of
the New Shareholder (the "Trust") are as follows:
(a) [-] [LIST OF TRUSTEES AND BENEFICIARIES];
(b) annexed hereto is a true copy of the Declaration of Trust
establishing the Trust and such document has not been amended or
superseded since the establishment of the Trust [EXCEPT AS
INDICATED BELOW]; and
(c) [EXCEPT IN THE CASE OF THE FOUNDING SHAREHOLDER, AND THE STRATEGIC
PARTNERS] neither the New Shareholder nor each of the undersigned
other than the New Shareholder is a non-Canadian within the
meaning of the INVESTMENT CANADA ACT, S.C. 1985, c. 20 as amended.
6. All notices, requests, demands or other communications
(collectively, "Notices") by the terms of the Shareholders' Agreement required
or permitted to be given by one party to any other shall be given to the New
Shareholder, in accordance with the terms of the Shareholders Agreement, at:
[NAME OF PARTY] at:
Telecopier Number:
7. Unless specifically defined herein or unless the context otherwise
requires, terms used herein which are defined in the Shareholders' Agreement
shall have the meanings ascribed to such terms in the Shareholders' Agreement.
8. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein and
shall be binding upon the undersigned and their heirs, executors,
administrators, successors, permitted assigns and legal representatives. The
undersigned hereby submit to the exclusive jurisdiction of the Courts of the
Province of Ontario in connection with this Acknowledgement, on the terms set
out in Section 1.4 of the Shareholders' Agreement.
<PAGE>
IN WITNESS WHEREOF the undersigned has duly executed this
Assumption Agreement [AS OF] the [-] day of [-], 199-.
SIGNED, SEALED AND DELIVERED ) [SIGNATURE OF INDIVIDUAL TRANSFEREE, DULY
in the presence of ) AUTHORIZED OFFICER OF CORPORATE
) TRANSFEREE
) OR TRUSTEE(S) OF TRANSFEREE TRUST
- ------------------------------- ) ------------------------------------------
(SIGNATURE OF WITNESS) )
)
)
) [SIGNATURES OF SHAREHOLDERS AND SECURITY
) HOLDERS OF CORPORATE TRANSFEREE
)
)
)
- ------------------------------- ) ------------------------------------------
(NAME OF WITNESS) )
- - PLEASE PRINT) ) [SEAL REQUIRED DUE TO POWER OF ATTORNEY]
)
)
)
)
- ------------------------------- )
(ADDRESS OF WITNESS) )
)
<PAGE>
SCHEDULE "13.1"
REGISTRATION RIGHTS
1. DEFINITIONS
The following capitalised terms, when used in this Schedule, have
the respective meanings set forth below (such definitions to be equally
applicable to both singular and plural forms of the terms defined). Any upper
case terms not defined in this Schedule have the meanings given to such terms in
the Shareholders' Agreement.
"CANADIAN SECURITIES LAWS" means the securities laws, regulations
and rules of the provinces of Canada, the policy statements and companion
policies of or administered by the Canadian Securities Regulators, and
discretionary rulings or orders issued by the Canadian Securities Regulators
pursuant to such laws, regulations, rules and policy statements, all as amended
and in effect from time to time.
"CANADIAN SECURITIES REGULATORS" means the British Columbia
Securities Commission; the Alberta Securities Commission; the Saskatchewan
Securities Commission; the Manitoba Securities Commission; the Ontario
Securities Commission; the Commission des valeurs mobilieres du Quebec; the Nova
Scotia Securities Commission; the Director of Securities, Department of Justice,
Newfoundland; the Office of the Administrator, New Brunswick; the Registrar of
Securities, Prince Edward Island; and any other person performing similar
functions under Canadian Securities Laws.
"COMPANY REGISTRATION" has the meaning given to such term in
Section 1.1 of the Shareholders' Agreement.
"DEMAND REGISTRATION" has the meaning given to such term in
Section 1.1 of the Shareholders' Agreement.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended from time to time.
"INITIATING PARTY(ies)" means the Founding Shareholder (in the
case of a Founding Shareholder Demand Registration) and the Strategic Partners
(in the case of a Strategic Partner Demand Registration).
"PIGGYBACK REGISTRATION" has the meaning given to such term in
Section 13.2 and includes a reference to the equivalent rights exercisable
pursuant to Section 14.2.
"REGISTER", "REGISTERED" and "REGISTRATION" means a registration
of Registrable Securities or qualification of a prospectus in respect of the
issuance or sale of Registrable Securities effected by preparing and filing a
Registration Statement in compliance with applicable Securities Laws and the
declaration or ordering of the effectiveness of such Registration Statement by
the appropriate Securities Regulators.
<PAGE>
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"REGISTRABLE SECURITIES" means any equity securities of the
Corporation.
"REGISTRATION EXPENSES" means any and all expenses incidental to a
Demand Registration or a Piggyback Registration, including without limitation:
(i) all registration and filing fees of the Securities Regulators, the National
Association of Securities Dealers, Inc. and other similar persons, (ii) all fees
and expenses incurred in connection with compliance with provincial and state
securities or "blue sky" laws (including reasonable fees and disbursements of
counsel in connection with the "blue sky" qualification of any of the
Registrable Securities), (iii) all expenses incurred by the Corporation in
preparing, printing and distributing any Registration Statement, any prospectus,
any amendments or supplements thereto or other documents incorporated by
reference therein, and other documents relating to the Demand Registration or
Piggyback Registration, (iv) all fees and expenses incurred by the Corporation
in connection with the listing, if any, of the Registrable Securities on any
securities exchange or quotation system, (v) the fees and disbursements of
counsel for the Corporation and of the independent public accountants of the
Corporation, including the expenses of any special audits or "cold comfort"
letters required by or incidental to such performance and compliance, and
(vi) the fees and expenses of one United States and one Canadian counsel to the
Selling Holders; provided that underwriting discounts and selling commissions,
fees and expenses and any transfer taxes in respect of any Selling Holder's
Registrable Securities incurred in connection with any registration and sale of
Registrable Securities shall not be Registration Expenses.
"REGISTRATION REQUEST" means a written notice to the Corporation
requesting a Demand Registration.
"REGISTRATION STATEMENTS" means a registration statement of the
Corporation (i) on Form F-1 or any similar long-form registration ("Long-Form
Registrations"); or (ii) on Form F-2, F-3 or F-10 or any similar short-form
registration ("Short-Form Registrations") if the Corporation qualifies to use
such a short form and (unless the context otherwise requires and subject to
subparagraphs (i) to (iii) below) a prospectus of the Corporation prepared in
accordance with the Canadian Securities Laws, and all amendments and supplements
to such document (including post-effective amendments), in each case including
all exhibits thereto and all materials incorporated by reference therein, and
for the purposes of this Agreement: (i) filing a preliminary prospectus prepared
in accordance with the Canadian Securities Laws and obtaining a receipt therefor
from each of the applicable Canadian Securities Regulators shall be deemed to
constitute filing a Registration Statement under the Canadian Securities Laws;
(ii) filing a (final) prospectus prepared in accordance with the Canadian
Securities Laws and obtaining a receipt therefor from each of the applicable
Canadian Securities Regulators shall be deemed to constitute causing a
Registration Statement to be declared effective under the Canadian Securities
Laws; and (iii) amending or supplementing a prospectus to the extent required by
the Canadian Securities Laws during the period in which securities are being
distributed pursuant to such prospectus shall be deemed to constitute
maintaining the effectiveness of a Registration Statement under the Canadian
Securities Laws.
"SECURITIES ACT" means the UNITED STATES SECURITIES ACT OF 1933,
as amended from time to time.
"SECURITIES LAWS" means Canadian Securities Laws and/or U.S.
Securities Laws.
<PAGE>
- 3 -
"SECURITIES REGULATORS" means any Canadian Securities Regulator
and/or U.S. Securities Regulator.
"SELLING HOLDERS" means each securityholder participating in a
Registration effected pursuant to Article 13 or Article 14 of the Unanimous
Shareholders' Agreement dated as of October 26, 1999 (the "Shareholders'
Agreement") concerning 724 Solutions Inc. (the "Corporation") such that all or
part of the Registrable Securities owned by the securityholder are included
among the securities offered by the Registration Statement.
"U.S. SECURITIES LAWS" means the Securities Act, the Exchange Act
and such other securities or blue sky laws of the states of the United States.
"U.S. SECURITIES REGULATOR" means the United States Securities and
Exchange Commission, and any other person performing similar functions under the
U.S. Securities Laws or under such other securities or blue sky laws of the
states of the United States that are applicable to an offering of Registrable
Securities hereunder.
2. RULES RELATING TO DEMAND REGISTRATION RIGHTS
Any request for a Demand Registration shall specify the number of
securities proposed to be sold by the Initiating Party(ies) and the intended
method of disposition thereof (i.e. registration only, "best efforts" or firm
underwriting). The Corporation shall not be obligated to effect a Demand
Registration in respect of less than such number of equity shares of the
Corporation as is equal to or greater than the lesser of: (I) 1,000,000 shares;
and (II) 25% of the equity shares of the Corporation then held by the Initiating
Party(ies).
Notwithstanding the initiation of a Demand Registration, if the
Corporation determines, after consultation with the proposed underwriters for
the offering, that the expected gross proceeds in the offering (inclusive of all
shares being sold in the offering by the Corporation and the Shareholders) is
less than $20,000,000 (the "Minimum Threshold"), the Corporation shall not be
obligated to effect such Demand Registration unless the Initiating Party(ies)
agree(s) to sell additional securities (to the extent that it retains any
securities of the Corporation) to make up the deficiency. For greater
certainty, if the Initiating Party(ies) are proposing to sell all of their
remaining securities of the Corporation, the Minimum Threshold requirement shall
not apply. In addition, for greater certainty, if a Demand Registration is not
implemented because the Minimum Threshold has not been met, the Initiating
Party(ies) shall be entitled to re-initiate such requested Demand Registration
at a later time in accordance with the provisions of this Schedule "13.1".
A Demand Registration may not require a shelf registration or a
shelf prospectus.
Notwithstanding anything to the contrary contained in this
Agreement, the Corporation shall not be obligated to effect a Founding
Shareholder Demand Registration if the Founding Shareholder had the opportunity
to utilize its Piggyback Registration rights within the immediately preceding
six month period and did not at that time exercise such rights by a request to
have included in such Piggyback Registration at least 100,000 equity shares of
the Corporation (it being acknowledged that as a result of the priority
allocation rules contained herein such request might not have been honoured in
full).
<PAGE>
- 4 -
In addition, the Corporation shall not be obligated to effect
any Demand Registration if: (i) the Corporation has, within the nine month
period immediately preceding the delivery of the Registration Request,
already effected a Demand Registration; or (ii) in any particular
jurisdiction in which the Corporation would be required to qualify generally
to do business or to execute a general consent to service of process in
effecting such Registration, except to the extent required by Applicable Law
of Canada, the United States or a political subdivision thereof in connection
with the particular offering.
In addition, if the Corporation shall furnish to the Initiating
Party(ies), a certificate signed by the Chief Financial Officer of the
Corporation stating that, in the good faith judgment of the Board of
Directors of the Corporation, it would be seriously detrimental to the
Corporation and its shareholders for such Registration Statement to be filed
and it is therefore essential to defer the filing of such Registration
Statement, the Corporation shall have the right to defer taking action with
respect to such filing for a period of not more than 120 days after receipt
of the Registration Request of the Initiating Party(ies); provided, however,
that the Corporation may utilize this right only once in respect of a
Founding Shareholder Demand Registration and only once in respect of a
Strategic Partner Demand Registration.
In addition, the Corporation shall not be obligated to effect,
or to take any action to effect, any Demand Registration: (i) during the
period starting with the date 60 days prior to the Corporation's good faith
estimate of the date of filing of, and ending on a date 180 days after the
effective date of, a Company Registration; provided that the Corporation is
actively employing in good faith all reasonable efforts to cause such
Registration Statement to become effective; or (ii) if the Initiating
Party(ies) proposes to dispose of Common Shares or other equity shares that
may be distributed pursuant to a Short-Form Offering pursuant to a request
made pursuant to Section 3 below .
The Founding Shareholder's Demand Registration rights may be
assigned, subject to the provisions of Section 1.19 hereof and the following
provisions of this Section 2. Subject to the last sentence of this
paragraph, the Strategic Partner Demand Registration rights are meant to be
exercised, collectively, by all Strategic Partners from time to time and no
interest therein may accrue to the benefit of or be exercised by any Person
other than a Strategic Partner (or its Permitted Transferee). The Founding
Shareholder's Demand Registration rights may be so assigned, provided: (a)
the Corporation is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned; and (b) such transferee or assignee agrees in writing to be bound
by and subject to the terms and conditions of this Agreement. For greater
certainty, the provisions of Section 13.3 shall apply to any such assignee of
the Founding Shareholder Demand Registration rights. After the Initial Public
Offering, any person which acquires from the then existing Strategic Partners
in a particular transaction (or series of related transactions) at least 5%
of the outstanding Common Shares shall be entitled to participate in the
group Strategic Partner Demand Registration rights, the group Short Form
Offering Registration rights and the Piggyback Registration rights
contemplated by Article 14 as if it were a Strategic Partner.
The Founding Shareholder and the Strategic Partners hereby
agree that, during the period of duration specified by the underwriter(s) of
Common Shares or other securities of the
<PAGE>
- 5 -
Corporation, following the effective date of a Company Registration filed
under applicable Canadian and/or U.S. securities laws, each of them shall
not, to the extent requested by such underwriter(s), directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any
short sale), grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
Corporation held by it at any time during such period except Common Shares or
other equity shares included in such Registration; provided, however, that:
(i) such agreement shall be applicable only to the first two
such Underwritten Company Registrations; and
(ii) such agreement shall not apply unless the Corporation
and, if requested by the underwriter(s), all officers and
directors of the Corporation and all other persons with
Registration Rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(iii) except in connection with the Corporation's Initial
Public Offering, such agreement shall not provide for a
market stand-off time period which exceeds 180 days.
In order to enforce the foregoing covenant, the Corporation may
impose stop-transfer instructions with respect to the Common Shares and other
equity shares of the Founding Shareholder and the Strategic Partners until
the end of such period.
3. FORM S-3, F-3, SHORT-FORM F-10 AND SHORT-FORM PROSPECTUS REGISTRATIONS
With a view to making available to the Founding Shareholder and
the Strategic Partners acting collectively (each an "S-3 Seller") the
benefits of Rule 144 promulgated under the Securities Act and any other rule
or regulation of the U.S. Securities Regulator that may at any time permit an
S-3 Seller to sell securities of the Corporation to the public without
registration or pursuant to a registration on Form S-3, Form F-3, a
short-form prospectus using Form F-10 or other similar simplified offering
documents under the applicable U.S. Securities Law or the benefits of a
short-form prospectus or similar simplified offering document pursuant to the
National Policy No. 47 "Prompt Offering Prospectus System" applicable under
Canadian Securities Law (collectively, "Short-Form Offerings"), the
Corporation agrees to:
(a) make and keep public information available and current, as those
terms are understood and defined in Rule 144 promulgated under the
Securities Act, at all times after 90 days after the effective
date of the first Registration Statement filed by the Corporation
for the offering of its securities to the general public in the
United States;
(b) take such action, including the voluntary registration of its
Common Shares and/or other equity shares under Section 12 of the
Exchange Act, as is necessary to enable the S-3 Sellers to utilise
Short-Form Offerings for the sale of its Common Shares or other
equity shares, such action to be taken as soon as practicable
after the end of the fiscal year in which the first Registration
<PAGE>
- 6 -
Statement filed by the Corporation for the offering of its
securities to the general public in the United States is declared
effective;
(c) file with the U.S. Securities Regulator in a timely manner all
reports and other documents required of the Corporation under the
Securities Act and the Exchange Act;
(d) furnish to any S-3 Seller, so long as it owns any Common Shares,
forthwith upon request: (i) a written statement by the Corporation
that it has complied with the reporting requirements of Rule 144
promulgated under the Securities Act (at any time after the day
which is 90 days after the effective date of the first
Registration Statement filed by the Corporation in the United
States), the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold
pursuant to a Short-Form Offering (at any time after it so
qualifies); (ii) a copy of the most recent annual or quarterly
report of the Corporation and such other reports and documents so
filed by the Corporation pursuant to the Exchange Act; and
(iii) such other information as may be reasonably requested in
availing any S-3 Seller of any rule or regulation of the U.S.
Securities Regulator or U.S. Securities Law which permits the
selling of any such securities without registration or pursuant to
such simplified Registration Statements; and
(e) file with the Canadian Securities Regulators an initial Annual
Information Form under the "Prompt Offering Prospectus System" (an
"AIF") and thereafter file renewal AIF's and all required
continuous disclosure and other documents required for the
Corporation to make use of the "Prompt Offering Qualification
System" as soon as it is otherwise eligible to do so (in which
case the provisions of this Section 3 shall apply MUTATIS
MUTANDIS.
In case the Corporation shall receive from an S-3 Seller a
proper written request or requests that the Corporation effect the
qualification of, or registration for, a Short Form Offering and any related
qualification or compliance with respect to all or a portion of the Common
Shares or other equity shares of the Corporation owned by the proposed S-3
Seller, the Corporation will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to the Founding Shareholder,
the Strategic Partners, the Management Shareholders and the
Non-Employee Directors; and
(b) as soon as practicable, effect such qualification or registration
and all such qualifications and compliance as may be so requested
and as would permit or facilitate the sale and distribution of all
or such portion of the proposed S-3 Seller's Common Shares or
other equity shares as are specified in such request, together
with all or such portion of the Common Shares or other equity
shares of any other Shareholder (excluding the Employee
Shareholders) joining in such request as are specified in a
written request given within 30 days after receipt of such written
notice from the Corporation; provided, however, that the
Corporation
<PAGE>
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shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 3:
(1) if a Short Form Offering is not available for such
offering by the initiating S-3 Seller; (2) if the initiating S-3
Seller, together with the holders of any other equity securities
of the Corporation entitled to inclusion in such Registration,
proposes to sell Common Shares and such other equity securities
(if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $15,000,000
(3) if the Corporation shall furnish to the initiating S-3 Seller
a certificate signed by the Chief Financial Officer of the
Corporation stating that, in the good faith judgement of the Board
of Directors of the Corporation, it would be seriously detrimental
to the Corporation and its Shareholders for such Short-Form
Offering Registration to be effected at such time, in which event
the Corporation shall have the right to defer the filing of the
Short-Form Offering Registration Statement for a period of not
more than 60 days after receipt of the request of the initiating
S-3 Seller; provided, however, that the Corporation shall not
utilize this right more than once in any 12 month period; (4) if
the Corporation has, within the 180 day period immediately
preceding the request of the initiating S-3 Seller, caused a
Registration Statement (for greater certainty including a
Short-Form Offering) to be made effective; (5) in any particular
jurisdiction in which the Corporation would be required to qualify
to do business or to execute a general consent to service of
process in effecting such registration, qualification or
compliance except to the extent required by Applicable Law of
Canada, the United States or a political subdivision thereof in
connection with the particular offering; or (6) pursuant to a
shelf registration; or (7):
(i) if the request of the S-3 Seller is made at any time
after the date which is four years from the Corporation's
Initial Public Offering; or
(ii) if: (I) such securities have ceased to be "restricted
securities" pursuant to Rule 144 promulgated under the
Securities Act and have become freely tradable upon the
expiration of any otherwise applicable hold period under
Canadian securities laws (or any similar provision under
applicable securities laws); and (II) an offering of such
securities would not be deemed to constitute a
"distribution" within the meaning of clause (c) of
Subsection 1(1) of the Securities Act (or equivalent
provisions of Canadian securities laws); and (III) the
S-3 Seller holds less than 5% of the issued and
outstanding equity shares of the Corporation at the date
of the request.
(c) Subject to the foregoing, the Corporation shall file a
Registration Statement covering the Common Shares and other equity
securities of the Corporation so requested as soon as practicable
after receipt of the request of the initiating S-3 Seller. All
Registration Expenses incurred in connection with a registration
requested pursuant to this Section 3, including (without
limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of one
United States and one Canadian counsel for the initiating S-3
Seller or other selling Shareholder(s) in addition to counsel
for the
<PAGE>
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Corporation, but excluding any underwriters' discounts or
commissions associated with such disposition of Common Shares
and other equity securities, shall be paid by the Corporation.
The balance of the provisions of this Schedule "13.1" shall
apply, MUTATIS MUTANDIS, to such Short Form Offerings.
4. PRIORITIES RELATING TO REGISTRATION RIGHTS
(a) If a Piggyback Registration is an underwritten primary
registration on behalf of the Corporation, or if the offering in
question is the Corporation's Initial Public Offering, and the
managing underwriter advises the Corporation in writing that, in
its opinion, the number of Registrable Securities requested to be
included in such Piggyback Registration exceeds the number which
can be sold in such offering without adversely affecting the price
of the Registrable Securities to be sold, then the Corporation
shall include in such offering: (i) first, the securities the
Corporation proposes to sell; (ii) second, the Registrable
Securities requested to be included in such Piggyback Registration
by the Founding Shareholder, the Strategic Partners, the
Management Shareholders and the Non-Employee Directors, provided
that, if the managing underwriter in good faith determines that a
lower number of Registrable Securities should be included, then
the Corporation shall be required to include in such Piggyback
Registration only that lower number of Registrable Securities, and
the Founding Shareholder, the Strategic Partners, the Management
Shareholders and the Non-Employee Directors shall participate in
the Piggyback Registration pro rata based upon the number of
Registrable Securities requested by them to be included in such
Piggyback Registration, except to the extent any of them may agree
to a lower priority; and (iii) third, other securities of the
Corporation requested to be included in such Piggyback
Registration.
(b) If a Demand Registration is an underwritten offering and the
managing underwriter advises the Corporation in writing that, in
its opinion, the number of Registrable Securities requested to be
included in such Demand Registration exceeds the number which can
be sold in such offering without adversely affecting the price of
the Registrable Securities to be sold, then the Corporation shall
include in such offering: (i) first, the Registrable Securities
requested to be included in such offering by the Founding
Shareholder, the Strategic Partners, the Management Shareholders
and the Non-Employee Directors (whether pursuant to their Demand
Registration rights or their Piggyback Registration rights),
provided that, if the managing underwriter in good faith
determines that a lower number of Registrable Securities should be
included, then the Corporation shall be required to include in
such Demand Registration only that lower number of Registrable
Securities, and the Founding Shareholder, the Strategic Partners,
the Management Shareholders and the Non-Employee Directors shall
participate in the Demand Registration pro rata based upon the
number of Registrable Securities requested by them to be included
in such Demand Registration, except to the extent any of them may
agree to a lower priority; (ii) second, the securities the
Corporation
<PAGE>
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proposes to sell; and (iii) third, other securities of
the Corporation requested to be included in such Demand
Registration.
(c) If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Corporation's securities
(other than the Founding Shareholder under Section 13.2 or the
Strategic Partners under Section 14.2) and the managing
underwriter advises the Corporation in writing that, in its
opinion, the number of Registrable Securities requested to be
included in such offering exceeds the number which can be sold in
such offering without adversely affecting the price of the
Registrable Securities to be sold, then the Corporation shall
include in such offering: (i) first, the securities proposed to be
sold by the sellers on whose behalf the offering was initiated;
second, the Registrable Securities requested to be included in
such offering by the Founding Shareholder, the Strategic Partners,
the Management Shareholders and the Non-Employee Directors,
provided that, if the managing underwriter, in good faith,
determines that a lower number of Registrable Securities should be
included, then the Corporation shall be required to include in
such Piggyback Registration only that lower number of Registrable
Securities, and the Founding Shareholder, the Strategic Partners,
the Management Shareholders and the Non-Employee Directors shall
participate in the Piggyback Registration pro rata based upon the
number of Registrable Securities requested by them to be included
in such Piggyback Registration, except to the extent any of them
may agree to a lower priority; (iii) third, the securities the
Corporation proposes to sell; and (iv) fourth, other securities of
the Corporation requested to be included in such Piggyback
Registration.
5. GENERAL PROVISIONS RELATING TO REGISTRATION RIGHTS
Each Selling Holder shall furnish the Corporation such information
regarding such Selling Holder and the distribution of its Registrable Securities
as the Corporation may from time to time reasonably request in writing in
connection with the Registration Statement.
A Selling Holder may only participate in any underwritten
registration hereunder if such Selling Holder: (i) agrees to sell such Selling
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the person or persons entitled hereunder to approve
such arrangements; and (ii) complete and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, escrow agreements and other
documents reasonably required and which are acceptable to such Selling Holder
acting reasonably and in good faith under the terms of such underwriting
arrangements and consistent with the provisions of this Schedule.
All Registration Expenses will be borne by the Corporation;
provided, however, that the Corporation shall not be required to pay for any
expenses of any registration or prospectus process initiated pursuant to a
Demand Registration if the registration request is subsequently withdrawn at the
request of the initiating party, in which case, the initiating party shall bear
such expense, unless at the time of such withdrawal the initiating party
indicates that since the date of the registration request, it has learned of a
material adverse change of the condition, business or prospects of the
Corporation from that known to the initiating party at the
<PAGE>
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time of the registration request and provided that the initiating party
withdraws the request with reasonable promptness following disclosure by the
Corporation of such material adverse change (whereupon the initiating party
shall not be required to pay any of such expenses and shall retain its rights
with respect to the abandoned Demand Registration).
If and whenever the Corporation is required to effect the
Registration of any Registrable Securities under the Securities Laws pursuant to
Article 13 or Article 14, the Corporation will, as expeditiously as possible:
(a) prepare and file with the Regulatory Authorities the requisite
Registration Statement to effect such Registration and thereafter
use its best efforts to cause such Registration Statement to
become effective;
(b) prepare and file with the Regulatory Authorities such amendments
and supplements to such Registration Statement as may be necessary
to keep such Registration Statement effective and to comply with
the provisions of the applicable Securities Laws with respect to
the disposition of all Registrable Securities offered by such
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the Selling Holders set forth in such
Registration Statement;
(c) furnish to each Selling Holder such number of conformed copies of
such Registration Statement and of each such amendment and
supplement thereto (in each case including all exhibits and
documents incorporated by reference, appropriately legended in the
case of those exhibits filed on a confidential basis), and, so
long as the Corporation is required to keep such Registration
Statement effective pursuant to paragraph (b) above, such number
of copies of the prospectus contained in such Registration
Statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed pursuant to the
applicable Securities Laws, in conformity with the requirements of
the applicable Securities Laws, and such other documents, as such
Selling Holder may reasonably request;
(d) use its best efforts (x) to register or qualify all Registrable
Securities offered by such Registration Statement under such other
securities or blue sky laws of such jurisdiction where an
exemption is not available and as any Selling Holder shall
reasonably request, (y) to keep such registration or qualification
in effect for so long as such Registration Statement remains in
effect and (z) to take any other action that may be necessary or
advisable to enable such Selling Holders to consummate the
disposition in such jurisdictions of the Registrable Securities to
be sold by such Selling Holders, except that the Corporation shall
not for any such purpose be required to (i) qualify generally to
do business as a foreign corporation in any jurisdiction wherein
it would not, but for the requirements of this paragraph, be
obligated to be so qualified, (ii) become subject to taxation in
any jurisdiction where it would not then be so subject or
(iii) take any action that would subject it to general service of
process in any such jurisdiction (except to
<PAGE>
- 11 -
the extent required by the Applicable Laws of a particular
jurisdiction in connection with the particular offering);
(e) use its reasonable best efforts to cause all Registrable
Securities offered by such Registration Statement to be registered
with or approved by such other federal, provincial or state
governmental agencies or authorities as may be necessary in the
opinion of counsel to the Corporation and counsel to the Selling
Holders to enable the Selling Holders to consummate the
disposition of such Registrable Securities;
(f) furnish at the effective date of such Registration Statement and
the date of closing of the sale of the Registrable Securities
(whether or not such sale is underwritten), to each Selling
Holder, and each Selling Holder's underwriters, if any, a signed
counterpart of:
(i) an opinion of counsel for the Corporation, dated the
effective date of such Registration Statement (or such
date of closing, as applicable), and
(ii) a "comfort" letter signed by the independent public
accountants who have certified the Corporation's
financial statements included or incorporated by
reference in such Registration Statement,
covering substantially the same matters with respect to such
Registration Statement (and the prospectus included therein) and,
in the case of the accountants' comfort letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' comfort letters delivered to the underwriters in
underwritten public offerings of securities;
(g) notify each Selling Holder at any time when a prospectus relating
to the Registration is required to be delivered under the
Securities Laws, upon discovery that, or upon the happening of any
event known to the Corporation as a result of which, the
prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in the
light of the circumstances under which they were made, and
promptly prepare and furnish to each Selling Holder a reasonable
number of copies of a supplement to or any amendment of such
prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the
circumstances under which they were made;
(h) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Securities Laws and, if
required, make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the
<PAGE>
- 12 -
period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the
effective date of such Registration Statement, which earnings
statement shall satisfy the provisions of Securities Laws, and
promptly furnish to each such Selling Holder a copy of any
amendment or supplement to such Registration Statement;
(i) permit any Selling Holder to participate in the preparation of
such Registration Statement and to include therein material,
furnished to the Corporation in writing, which in the reasonable
judgement of the Selling Holder should be included and which is
reasonably acceptable to the Corporation;
(j) if any proposed Registration Statement refers to a Selling Holder
by name or otherwise as the holder of any securities of the
Corporation then: (i) the Corporation shall be required to insert
therein language, in form and substance reasonably satisfactory to
such Selling Holder, the Corporation and the managing underwriter,
to the effect that the ownership by such Selling Holder of such
securities is not to be construed as a recommendation by such
Selling Holder as to the investment quality of the Corporation's
securities offered thereby and that such ownership does not imply
that such Selling Holder will assist in meeting any future
financial requirements of the Corporation; or (ii) in the event
that such reference to such Selling Holder by name or otherwise is
not required by the applicable Securities Laws, any similar
federal, provincial or state statute, or any rule or regulation of
any other regulatory body having jurisdiction over the offering,
then in force, the Corporation shall be required at the request of
such Selling Holder to delete the reference to such Selling
Holder;
(k) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities offered by such Registration
Statement from and after a date not later than the Effective Date;
and
(l) use its best efforts to list all Registrable Securities covered by
such Registration Statement on any securities exchange or trading
market on which the Corporation's Registrable Securities are then
listed.
If requested by the underwriters for any underwritten offering
of Registrable Securities pursuant to a Demand Registration, the Corporation
will use all reasonable efforts to enter into an underwriting agreement with
such underwriters for such Demand Registration, such agreement to be
reasonably satisfactory in substance and form to the Corporation, the Selling
Holders and the underwriters and to contain such representations and
warranties by the Corporation and such other terms as are customary in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in paragraph 6 hereof. The Selling Holders
will reasonably cooperate with the Corporation in the negotiation of the
underwriting agreement. Such Selling Holders shall be parties to such
underwriting agreement. All of the representations and warranties by, and
the other agreements on the part of, the Corporation to and for the benefit
of such underwriters shall also be made to and for the benefit of such
Selling Holders and any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement shall also be
conditions precedent to the obligations of such Selling
<PAGE>
- 13 -
Holders. No Selling Holder shall be required to make any representations or
warranties to or agreements with the Corporation other than representations,
warranties or agreements regarding such Selling Holder, matters pertaining to
the Selling Holder's contractual or other arrangements with the Corporation,
such Selling Holder's Registrable Securities and such Selling Holder's
intended method of distribution or any other representations required by the
applicable Securities Laws.
If requested by the underwriters for any underwritten offering
of Registrable Securities pursuant to a Piggyback Registration, the Selling
Holders shall be parties to the underwriting agreement between the
Corporation and such underwriters. All of the representations and warranties
by, and the other agreements on the part of, the Corporation to and for the
benefit of such underwriters shall also be made to and for the benefit of the
Selling Holders, and any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement shall also
be conditions precedent to the obligations of the Selling Holders. No
Selling Holder shall be required to make any representations and warranties
to, or agreements with, the Corporation or such underwriters other than those
representations, warranties or agreements regarding the Selling Holder,
matters pertaining to the Selling Holder's contractual or other arrangements
with the Corporation, the Selling Holder's Securities, the Selling Holder's
intended method of distribution and any other representations required by the
applicable Securities Laws.
In connection with the preparation and filing of each
Registration Statement under the Securities Laws, the Corporation will give
the Selling Holders, their underwriters, if any, and their respective counsel
the opportunity to participate in the preparation of such Registration
Statement, each prospectus included therein or filed with the Regulatory
Authorities, and each amendment thereof or supplement thereto, and will give
each of them such reasonable access to the books and records of the
Corporation and such opportunities to discuss the business of the Corporation
with its officers and the independent public accountants who have certified
its financial statements as shall be necessary, in the opinion of such
holders, and such underwriters and their respective counsel, to conduct a
reasonable investigation. The Corporation shall promptly notify such holders
and their counsel of any stop order issued or threatened by the Regulatory
Authorities and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
If the Corporation becomes subject to the reporting
requirements of a jurisdiction where the Registrable Securities become
qualified, the Corporation will use its best efforts to file with the
applicable Regulatory Authorities such information as the applicable
Regulatory Authorities may require in a timely fashion; and in such event,
the Corporation shall use its best efforts to take all action as may be
required in order to maintain the registration of such Registrable Securities
in good standing and not in default. The Corporation shall furnish to the
Selling Holders forthwith upon request (i) a written statement by the
Corporation as to its compliance with the reporting requirements of
applicable Regulatory Authorities, (ii) a copy of the most recent annual or
quarterly report of the Corporation as filed with the applicable Regulatory
Authorities, and (iii) such other reports and documents as the Selling
Holders may reasonably request in availing themselves of any rule or
regulation of the Regulatory Authorities allowing the Selling Holders to sell
any such Registrable Securities without qualifying a prospectus or completing
a registration.
<PAGE>
- 14 -
6. INDEMNIFICATION PROVISIONS RELATING TO REGISTRATION RIGHTS
In connection with any Registration, the Corporation agrees to
indemnify, to the full extent permitted by law, each Selling Holder, each
other person or entity which participates as an underwriter in the offering
or sale of such Registrable Securities and each other person or entity which
controls such Selling Holder or any such underwriter, and their respective
directors, officers, partners, agents and affiliates, against all losses,
claims, damages, liabilities and expenses (including legal fees and
disbursements on a solicitor and client basis) to which such Selling Holder
or underwriter or any such director, officer, partner, agent, affiliate or
controlling person or entity may become subject under applicable law or
otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment or supplement
thereto) or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as the same are caused by any untrue statement or alleged
untrue statement or any such omission or alleged omission if (x) such untrue
statement or omission is completely corrected in an amendment or supplement
to such Registration Statement prepared in a timely fashion by the
Corporation and the Corporation has furnished such Selling Holder (or
underwriter, if any) with a sufficient number of copies of the same, the
Selling Holder (or underwriter, if any) having an obligation under the
Securities Laws to deliver a prospectus or prospectus supplement in
connection with such sale of Registrable Securities thereafter fails to
deliver such prospectus or prospectus supplement as so amended or
supplemented prior to or concurrently with the sale of Registrable Securities
to the person asserting such loss, claim, damage or liability, or (y)such
untrue statement or omission is caused by or contained in any information
with respect to any Selling Holder which was furnished in writing to the
Corporation by the Selling Holder expressly for use therein, or caused by the
Selling Holder's failure to deliver (contrary to the requirements of the
applicable Securities Laws or contrary to an undertaking given by the Selling
Holder) to a prospective purchaser a copy of the Registration Statement or
any amendment or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Selling Holder or any such director, officer, partner, employee, agent,
affiliate or controlling person and shall survive the transfer of Registrable
Securities by such Selling Holder (or underwriter, if any).
In connection with any offering in which the Selling Holders
are participating, each Selling Holder will furnish to the Corporation in
writing such information with respect to it as the Corporation reasonably
requests for use in connection with any such Registration Statement. Each
Selling Holder agrees to indemnify, to the full extent permitted by law, the
Corporation, its directors and officers and each person who controls the
Corporation (within the meaning of the Securities Laws) and, in connection
with an underwritten offering, each underwriter and each person who controls
the underwriters (within the meaning of the Securities Laws) against any
losses, claims, damages, liabilities and expenses (including attorneys' fees
and disbursements) caused by any untrue or alleged untrue statement of a
material fact contained in any Registration Statement or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, to the extent, but
only to the extent, that such untrue statement or omission is in conformity
with and contained in any information
<PAGE>
- 15 -
with respect to any Selling Holder so furnished in writing by the Selling
Holder expressly for use therein, provided, however, that (x) the Selling
Holder shall not be liable in any such case to the extent that any such
statement or omission is completely corrected in the final prospectus, in the
case of a preliminary prospectus, or in an amendment or supplement to a
prospectus or prospectus supplement and (y) the liability of such Selling
Holder under this section shall be limited to the amount of proceeds received
by such Selling Holder in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Corporation or any such director,
officer or controlling person and shall survive the transfer of Registrable
Securities by such Selling Holder.
Any person entitled to indemnification hereunder (the
"Indemnified Party") agrees to give prompt written notice to the indemnifying
party as provided at paragraph 5 hereof (the "Indemnifying Party") after the
receipt by such person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof made in writing
for which such person will claim indemnification or contribution pursuant to
this Agreement (provided, however, that the failure of any Indemnified Party
to give such notice shall not relieve the Indemnifying Party of its
obligations except to the extent that the Indemnifying Party is materially
prejudiced by such failure to give notice) and, unless in the reasonable
judgement of such Indemnified Party a conflict of interest may exist between
such Indemnified Party and the Indemnifying Party with respect to such claim,
permit the Indemnifying Party to assume the defence of such claim with
counsel reasonably satisfactory to such Indemnified Party. Provided,
however, that if the Indemnifying Party does not inform the Indemnified Party
of its decision to defend the claim within five business days after receipt
of notice of the claim from the Indemnified Party (and as soon as practicable
thereafter the identity of counsel retained for the defence), or thereafter
abandons the defence or fails to pursue the defence in good faith, then the
Indemnified Party (in conjunction with all other Indemnified Parties) may
retain counsel and conduct the defence of the claim in good faith and at the
Indemnifying Party's cost and expense . In such circumstances the
Indemnifying Party shall be bound by the results obtained by the Indemnified
Party (unless and until the Indemnifying Party shall thereafter request to
participate in the defence of the claim, after which the parties shall
jointly conduct the defence of the claim). If the Indemnifying Party is not
entitled to, or elects not to, assume the defence of a claim (or thereafter
abandons such defence or does not pursue such defence in good faith), it will
not be obligated to pay the fees and expenses of more than one counsel with
respect to such claim, unless in the reasonable judgement of any Indemnified
Party a conflict of interest may exist between such Indemnified Party and any
other of such Indemnified Parties with respect to such claim, in which event
the Indemnifying Party shall be obligated to pay the fees and expenses of
such additional counsel or counsels. The Indemnifying Party will not be
subject to any liability for any settlement made without its written consent,
which consent shall not be unreasonably withheld or delayed.
If the indemnification provided for in this section from an
Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute, subject to the same restrictions and
limitations applicable to such indemnification to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with
<PAGE>
- 16 -
the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such Indemnifying Party or Indemnified
Party, and the party's' relative intent, knowledge, access to information and
opportunity to correct or prevent such action.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in this section, any
legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding. If an Indemnified Party,
acting reasonably, determines that any payment in respect of indemnification
or contribution (the "Payment") made pursuant to this Schedule "13.1" is
subject to taxes payable under the EXCISE TAX ACT (Canada) ("GST") or under
any provincial or other legislation similar to the EXCISE TAX ACT, or under
any successor legislation of like or similar effect (collectively, the
"ETA"), or if any sales or similar tax under any provincial or other
legislation not substantially harmonised with the ETA is applicable to such
Payment, the amount of the Payment shall be increased by the amount of all
applicable taxes to the extent necessary to compensate the Indemnified party
for any net GST or similar tax cost not recoverable as input tax credit or
similar tax recoveries.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this section were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to above. No person guilty of
fraudulent misrepresentation (as defined in the applicable securities
legislation) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
If indemnification is available under this section, the
Indemnifying Parties shall indemnify the Indemnified Parties to the full
extent provided in this Section.
The Selling Holders shall be deemed to be acting as agent and attorney herein
for their respective controlling persons or entities, their respective
underwriters (and persons or entities which control such underwriters) and
the respective directors, officers, partners, agents and affiliates thereof
with respect to the rights of indemnification and contribution herein
contained.
<PAGE>
APPENDIX "A"
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
NAME OF SHAREHOLDERS NUMBER OF COMMON SHARES
- -----------------------------------------------------------------------------
<S> <C>
Blue Sky Capital Corporation 2,000,000
- -----------------------------------------------------------------------------
1319079 Ontario Inc. 2,000,000
- -----------------------------------------------------------------------------
Bank of Montreal 1,714,285
- -----------------------------------------------------------------------------
Bank of America Corporation 1,600,000
- -----------------------------------------------------------------------------
CSTC 3,200,000
- -----------------------------------------------------------------------------
Sonera Corporation 3,200,000
- -----------------------------------------------------------------------------
WFC Holdings Corporation 392,157
- -----------------------------------------------------------------------------
Financial Technology Ventures (Q), L.P. 252,105
- -----------------------------------------------------------------------------
Financial Technology Ventures, L.P. 9,333
- -----------------------------------------------------------------------------
HSBC Investment Bank plc. 333,333
Common Shares and the HSBC Warrant in
respect of 333,334 Common Shares
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1 DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . .3
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.2 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Interpretation.. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.4 Governing Law/Submission to Jurisdiction.. . . . . . . . . . . . . . 19
1.5 Number and Gender. . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.6 Computation of Time. . . . . . . . . . . . . . . . . . . . . . . . . 19
1.7 Statutory References.. . . . . . . . . . . . . . . . . . . . . . . . 19
1.8 Effect on Management.. . . . . . . . . . . . . . . . . . . . . . . . 19
1.9 Rights and Obligations of Transferees. . . . . . . . . . . . . . . . 19
1.10 Share References.. . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.11 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.12 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.13 Amendments and Waivers.. . . . . . . . . . . . . . . . . . . . . . . 21
1.14 Accounting and Auditing. . . . . . . . . . . . . . . . . . . . . . . 22
1.15 Shareholder Regulatory Requirements. . . . . . . . . . . . . . . . . 22
1.16 References to Agreements.. . . . . . . . . . . . . . . . . . . . . . 24
1.17 Special Provisions Relating to the Founding Shareholder. . . . . . . 24
1.18 Special Provisions Relating to the Rights Attaching to the
Common Shares Sold by the Founding Shareholder. . . . . . . . . . . . . . . 25
1.19 Special Provisions Relating to FTV . . . . . . . . . . . . . . . . . 26
1.20 Special Provisions Relating to the HSBC Warrant. . . . . . . . . . . 28
ARTICLE 2 TERMINATION OF PRIOR AGREEMENTS 29
2.1 Amendment and Restatement of October 19, 1999 Unanimous
Shareholders' Agreement/Termination of Prior Agreements. . . . . . . . . . 29
ARTICLE 3 WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1 Shareholders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 Shareholders Which are Corporate or Other Entities.. . . . . . . . . 30
3.3 The Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4 Qualification of Representations and Warranties. . . . . . . . . . . 31
ARTICLE 4 PROVISIONS FOR CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.1 Unanimous Shareholders' Agreement. . . . . . . . . . . . . . . . . . 31
4.2 Corporate Governance Matters.. . . . . . . . . . . . . . . . . . . . 32
4.3 Limitations on Liability/Shareholder Personal Interest.. . . . . . . 39
4.4 Indemnification of Directors and Officers. . . . . . . . . . . . . . 41
4.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.6 Effect of Article 4. . . . . . . . . . . . . . . . . . . . . . . . . 42
4.7 Certain Matters Pertaining to Employee Shareholders and
Management Shareholders. . . . . . . . . . . . . . . . . . . . . . . 42
4.8 Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . 42
4.9 Resolution of Disputes.. . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 5 OPERATION AND FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1 Composition and Compensation of Management Team. . . . . . . . . . . 43
5.2 Accountants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.3 Interim Financial Statements.. . . . . . . . . . . . . . . . . . . . 44
ARTICLE 6 RESTRICTIONS ON TRANSFERS OF SHARES. . . . . . . . . . . . . . . . . . . 44
6.1 Restrictions on Transfers. . . . . . . . . . . . . . . . . . . . . . 44
6.2 Permitted Transfers. . . . . . . . . . . . . . . . . . . . . . . . . 45
6.3 Permitted Transfers for Founding Shareholder.. . . . . . . . . . . . 45
6.4 Pledge of Common Shares by Founding Shareholder. . . . . . . . . . . 46
ARTICLE 7 RESTRICTIONS ON INDIRECT TRANSFERS OF SHARES OF THE CORPORATION. . . . . 46
7.1 Management and Employee Shareholders - Restrictions on
Transfer.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.2 Management and Employee Shareholders - Permitted Transfers.. . . . . 47
7.3 Management and Employee Shareholders - Prohibition to
Amalgamate, Merge, etc.. . . . . . . . . . . . . . . . . . . . . . . 47
7.4 BMO, BAC, CSTC, Sonera, WFC, FTV and HSBC - Restrictions on
Transfer and Permitted Transfers.. . . . . . . . . . . . . . . . . . 47
7.5 Founding Shareholder - Restrictions on Transfer and Permitted
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.6 Permissible Indirect Transfers and Permissible Amalgamations for
the Founding Shareholder and the Strategic Partners. . . . . . . . . . . . 49
ARTICLE 8 DRAG-ALONG RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.1 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.2 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . 50
8.3 Receipt of Third Party Written Offer.. . . . . . . . . . . . . . . . 50
8.4 Offer for All, or Any and All, Common Shares.. . . . . . . . . . . . 51
8.5 Offer for Less Than All Common Shares. . . . . . . . . . . . . . . . 51
8.6 Terms of Sale by Shareholders. . . . . . . . . . . . . . . . . . . . 53
8.7 Applicability of Tag-Along Rights. . . . . . . . . . . . . . . . . . 54
8.8 Sales to Competitors.. . . . . . . . . . . . . . . . . . . . . . . . 54
8.9 Application of Article 8 to Strategic Partners.. . . . . . . . . . . 54
ARTICLE 9 RIGHT OF FIRST REFUSAL ON SHARES HELD BY MANAGEMENT SHAREHOLDERS,
EMPLOYEE SHAREHOLDERS AND NON-EMPLOYEE DIRECTORS . . . . . . . . . . . . . . . . . 54
9.1 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.2 Offer to Founding Shareholder and the Strategic Partners.. . . . . . 55
9.3 Purchase of Shares by Founding Shareholder and the Strategic
Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.4 Sale Pursuant to Original Offer. . . . . . . . . . . . . . . . . . . 55
9.5 Revival of Right of First Refusal. . . . . . . . . . . . . . . . . . 56
9.6 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.7 Prohibited Sales.. . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 10 TAG-ALONG RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.1 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.2 Tag-Along Right. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.3 Effect of Exercise of Tag-Along Right. . . . . . . . . . . . . . . . 59
10.4 Terms of Sale by Shareholders. . . . . . . . . . . . . . . . . . . . 59
ARTICLE 11 PRE-EMPTIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11.1 Pre-emptive Right. . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
(ii)
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11.2 Offer to the Founding Shareholder and the Strategic Partners . . . . 60
11.3 Purchase by Offeree. . . . . . . . . . . . . . . . . . . . . . . . . 60
11.4 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.5 Special Provisions Relating to BMO's Pre-emptive Right.. . . . . . . 62
11.6 Special Provisions Relating to BAC's Pre-emptive Right.. . . . . . . 64
11.7 Special Provisions Relating to the Founding Shareholder's, CSTC's
and Sonera's Pre-emptive Rights . . . . . . . . . . . . . . . . . . . . . . 66
11.8 Subscription Representations . . . . . . . . . . . . . . . . . . . . 67
11.9 Effect of Share Sales on Special Pre-emptive Rights. . . . . . . . . 67
ARTICLE 12 CALL RIGHT CONCERNING MANAGEMENT, NON-EMPLOYEE DIRECTORS AND EMPLOYEE
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12.1 Call Right.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
12.2 Calculation of Purchase Price. . . . . . . . . . . . . . . . . . . . 68
12.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 13 FOUNDING SHAREHOLDER REGISTRATION RIGHTS. . . . . . . . . . . . . . . . 69
13.1 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . 69
13.2 Piggyback Registration.. . . . . . . . . . . . . . . . . . . . . . . 69
13.3 Expiry of Registration Rights. . . . . . . . . . . . . . . . . . . . 70
13.4 Short-Form Prospectus Registrations. . . . . . . . . . . . . . . . . 70
ARTICLE 14 REGISTRATION RIGHTS OF STRATEGIC PARTNERS, MANAGEMENT SHAREHOLDERS
AND NON-EMPLOYEE DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14.1 Demand Registration Rights of Strategic Partners . . . . . . . . . . 70
14.2 Piggyback Registration Rights of Strategic Partners, Management
Shareholders and Non-employee Directors . . . . . . . . . . . . . . . . . . 71
14.3 Expiry of Registration Rights. . . . . . . . . . . . . . . . . . . . 72
14.4 Short-Form Offering Registrations. . . . . . . . . . . . . . . . . . 72
ARTICLE 15 EXIT OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
15.1 Strategic Partners' Ability to Cause an Initial Public Offering. . . 72
15.2 Solicitation of Offers for All Outstanding Common Shares.. . . . . . 73
15.3 Strategic Partner Offer to Founding Shareholder and Other
Strategic Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
15.4 Termination of Employment of Greg Wolfond. . . . . . . . . . . . . . 75
15.5 General Rules, Rights and Obligations Pertaining to Exit Options.. . 76
ARTICLE 16 GENERAL SALE PROVISIONS 77
16.1 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
16.2 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
16.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
16.4 Indemnities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
16.5 Repayment of Indebtedness by Corporation.. . . . . . . . . . . . . . 79
16.6 Repayment of Indebtedness by Vendor. . . . . . . . . . . . . . . . . 79
16.7 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . 80
16.8 No Joint Liability for Purchasers. . . . . . . . . . . . . . . . . . 80
ARTICLE 17 RESTRICTIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 80
17.1 Management, Non-Employee Directors and Employee Shareholders.. . . . 80
17.2 Confidential Information.. . . . . . . . . . . . . . . . . . . . . . 81
17.3 Non-Solicitation Obligation of Strategic Partners and the Founding
Shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
17.4 Acknowledgement of Reasonableness. . . . . . . . . . . . . . . . . . 83
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
17.5 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 18 GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
18.1 Guarantee of Principal.. . . . . . . . . . . . . . . . . . . . . . . 84
18.2 Nature of Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . 84
18.3 Grant of Extensions, etc.. . . . . . . . . . . . . . . . . . . . . . 84
18.4 Not Bound to Exhaust Recourses.. . . . . . . . . . . . . . . . . . . 85
ARTICLE 19 GENERAL CONTRACT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 85
19.1 Share Certificate Legend.. . . . . . . . . . . . . . . . . . . . . . 85
19.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
19.3 Deemed Adequate Notice.. . . . . . . . . . . . . . . . . . . . . . . 90
19.4 Further Acts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
19.5 Time.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
19.6 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . 91
19.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
19.8 Enurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
19.9 Language.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
</TABLE>
SCHEDULE "1.1(F)" - DEFINITION OF ARM'S LENGTH
SCHEDULE "1.1(GG)" - FORM OF HSBC WARRANT
SCHEDULE "4.9" - ARBITRATION PROCEDURES
SCHEDULE "6.2" - ACKNOWLEDGMENT OF ASSUMPTION OF OBLIGATIONS
SCHEDULE "11.4" - ACKNOWLEDGMENT OF ASSUMPTION OF OBLIGATIONS
SCHEDULE "13.1" - REGISTRATION RIGHTS
APPENDIX "A"
(iv)
<PAGE>
HSBC INVESTMENT BANK PLC.
AND
THE DIRECTORS, OFFICERS AND EMPLOYEES OF 724 SOLUTIONS INC.
WHO BECOME SHAREHOLDERS FROM TIME TO TIME
AMENDED AND RESTATED UNANIMOUS SHAREHOLDERS'
AGREEMENT
October 26, 1999
<PAGE>
724 SOLUTIONS INC.
AND
BLUE SKY CAPITAL CORPORATION
AND
1319079 ONTARIO INC.
AND
BANK OF MONTREAL
AND
BANK OF AMERICA CORPORATION
AND
CITICORP
AND
CITICORP STRATEGIC TECHNOLOGY CORPORATION
AND
SONERA CORPORATION
AND
WFC HOLDINGS CORPORATION
AND
FINANCIAL TECHNOLOGY VENTURES (Q), L.P.
AND
FINANCIAL TECHNOLOGY VENTURES, L.P.
AND
<PAGE>
**** CERTAIN PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST
FOR CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE SECURITIES ACT OF 1933,
AS AMENDED.
MASTER TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT is made the 29th day of December, 1999
B E T W E E N:
724 SOLUTIONS CORP., a corporation incorporated under the laws of
the State of Delaware, having its registered office at 1209
Orange Street, Wilmington, Delaware 19801 ("LICENSOR");
-AND-
CITICORP STRATEGIC TECHNOLOGY CORPORATION, a corporation
established under the laws of Delaware having an office at 399
Park Avenue, New York, New York, 10043 ("CITIBANK").
BACKGROUND:
1. Licensor is an indirectly wholly-owned subsidiary of 724 Solutions Inc.
("724 Solutions"), and a directly wholly-owned subsidiary of 724
Solutions International SRL ("724 SRL");
2. 724 Solutions, 724 SRL and its Affiliates (as defined below) are in the
business of designing and developing Internet Protocol-based electronic
banking, brokerage, insurance, financial services and e-commerce
applications which allow its licensees to deliver their services to
their customers over a variety of access devices;
3. Licensor is in the business of marketing and selling the banking,
brokerage, insurance, financial services and e-commerce applications to
financial institutions in order to allow such financial institutions to
provide certain services to their customers, and 724 Solutions wishes
to facilitate financial institutions' buying or licensing the
applications by providing consulting and maintenance services with
respect thereto; and
4. Citibank wishes to enter into an Agreement with Licensor whereby
Citibank and its Affiliates (as defined below), upon execution of the
applicable Licensed Affiliate Agreement (as defined below), may license
certain 724 Modules (as defined below) for use in certain 724 Channels
(as defined below), all in accordance with the terms and conditions of
this Agreement.
IN CONSIDERATION of the promises, the mutual covenants contained herein and
other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the Parties hereto agree as follows:
<PAGE>
- 2 -
ARTICLE I
INTERPRETATION AND STRUCTURE OF AGREEMENT
1.1 DEFINITIONS. In this Agreement, the following expressions shall have
the following meanings:
"AFFILIATE" of a Person means an entity, present or future, directly or
indirectly controlled by, controlling or under common control with
such Person or their successors subject to the provisions of Section
9.3. For the purposes of this definition of Affiliate, an entity
"controls" a Person where that entity owns at least 25% of the equity,
directly or indirectly, of that Person.
"AGREEMENT" means in respect of each Licensed Affiliate, this Master
Technology License Agreement, all Exhibits attached hereto, the
Licensed Affiliate Agreement and all Schedules attached thereto and
any written agreement or written exhibit or written schedule signed by
the Parties supplementing or amending any of the foregoing. The words
"hereto," "herein," "hereof," "hereby" and "hereunder" and similar
expressions refer to this Agreement and not to any particular section
or portion of it. References to an Article, Section, Subsection or
Schedule refer to the applicable article, section, subsection or
schedule of this Agreement.
"BUSINESS DAY" means any day, other than a Saturday, Sunday, statutory
or civic holiday in the governing jurisdiction as set out in the
relevant Licensed Affiliate Agreement.
"CLIENT EXECUTABLE COMPONENTS" means, with respect to certain Licensed
Channels which may require limited components of the Software to
reside on Customers' devices and/or at the premises of a third party
in support of such Customers' devices, such components.
"COMPETITIVE AREAS" means, with respect to a Person, those parts,
divisions, or business units of such Person whose principal business is
the commercial development, marketing or licensing of commercial
products that are competitive with the Licensed Technology. For
clarity, where this Agreement expressly provides that Licensee may
engage a Contractor of Licensee to provide services on behalf of
Licensee, any of a Person's parts, divisions or business units that are
not Competitive Areas ("Non-Competitive Areas") may provide such
services to Licensee provided such Non-Competitive Areas agree in
writing to not use (other than on behalf of Licensee) or disclose to
Competitive Areas or to third parties any Confidential Information
received directly or indirectly from Licensor, Licensee or any of their
Affiliates. For clarity, a Person, or any parts, divisions, or
business units of such Person whose principal business is providing
banking, financial, insurance or brokerage services to customers is
not a Competitive Area.
"CONFIDENTIAL INFORMATION" means any information, technical data or
know-how including that which relates to a Party's or its Affiliates'
hardware, software, screens, specifications, designs, plans, drawings,
data, prototypes, discoveries, research, developments, processes,
procedures, intellectual property, market research, marketing
techniques and plans, business plans and strategies, customer names
and other
<PAGE>
- 3 -
information related to customers, price lists, pricing
policies and financial information or other business and/or technical
information and materials, in oral, demonstrative, written,
electronic, graphic or machine-readable form and any analyses,
compilations, studies or documents prepared by the Receiving Party (as
defined in Section 7.1), its representatives or employees which
summarize any such information of the Disclosing Party (as defined in
Section 7.1). Confidential Information also includes any information
described above which either Party or any of its Affiliates has
obtained from another Party that treats such information as
proprietary or designates it as Confidential Information whether or
not it is owned or developed by such Party or its Affiliates.
Notwithstanding anything to the contrary contained herein, neither
Party shall have any obligation with respect to any Confidential
Information of the other Party which, as evidenced by tangible records
kept in the ordinary course of business: (i) is or becomes generally
known to companies engaged in the same or similar business as the
Parties hereto on a non-confidential basis, through no wrongful act of
the Receiving Party; (ii) is lawfully obtained by the Receiving Party
from a third party who may lawfully disclose it and without any
obligation by the Receiving Party to such third party to maintain the
information proprietary or confidential; (iii) is known by the
Receiving Party prior to disclosure hereunder without any obligation
to keep it confidential and such information was not disclosed by the
Disclosing Party under this Agreement; (iv) is independently developed
by the Receiving Party without reference to or use of the other's
Confidential Information; or (v) is the subject of a written agreement
whereby the Disclosing Party consents to the disclosure of such
Confidential Information.
"CONSULTING SERVICES" has the meaning set forth in Section 3.1.
"CONTENT" means the data feeds, copyright material, information
services and other content that may be transmitted to Customers using
the Licensed Technology.
"CONTRACTOR OF LICENSEE" means a contractor, agent, employee or
representative (i) controlling, operating or maintaining the System
Requirements or other systems or processes of such Licensee used to
provide Licensee Services to Customers or (ii) providing services to
Licensee pursuant to Sections 3.1 or 3.5.
"CUSTOMER" means an end-user customer of Licensee.
"CUSTOMIZATION" means any software or other application created (i) by
Licensor and/or its Affiliates at the request of a Licensed Affiliate
pursuant to a Statement of Services or (ii) in accordance with the
provisions of Section 3.5.
"DERIVATIVE WORK" means a work which is based on the Licensed
Technology, such as a revision, enhancement, modification,
translation, abridgement, condensation, expansion, or any other form
in which the underlying work may be recast, transformed, or adapted,
and which, if prepared without authorization of the owner of the
copyright in the underlying work, would constitute a copyright
infringement. Derivative Works are subject to the ownership rights
and licenses of others in the underlying work.
<PAGE>
- 2 -
"DESIGNATED SITES" means the sites from which Licensee operates the
Licensed Technology (other than certain Client-Executable Components)
in accordance with the terms of this Agreement and which are set out
in the Licensed Affiliate Agreement, as may be changed from time to
time in the sole discretion of Licensee upon 60 days written notice to
the 724 Distribution Company which is party to such Licensed Affiliate
Agreement.
"EMBEDDED THIRD PARTY MATERIALS" has the meaning set forth in Section
2.6(b).
"INCLUDING" and "INCLUDES" shall be deemed to be followed by the
statement "without limitation" and neither of such terms shall be
construed to limit any word or statement which it follows to the
specific or similar items or matters immediately following it.
"INTELLECTUAL PROPERTY RIGHTS" include: (A) any and all proprietary
rights provided under (i) patent law, (ii) copyright law, (iii) design
patent or industrial design law, (iv) semi-conductor chip or mask work
law, or (v) any other statutory provision or common law principle,
applicable to 724 Solutions, 724 SRL, the Licensor and, if applicable,
the relevant 724 Distribution Company, which may provide a right in
either (a) ideas, formulae, algorithms, concepts, inventions or
know-how generally, including trade secret law, or (b) the expression
or use of such ideas, formulae, algorithms, concepts, inventions or
know-how; and (B) any and all applications, registrations, licenses,
sub-licenses, franchises, agreements or any other evidence of a right
in any of the foregoing.
"LICENSED AFFILIATE" means Citibank (provided it has entered into the
Licensed Affiliate Agreement) or each Affiliate of Citibank which has
entered into the Licensed Affiliate Agreement provided that a Person
whose principal business is the commercial development, marketing or
licensing of commercial products that are competitive with the
Licensed Technology shall be deemed to not be an Affiliate of Citibank
for the purposes of this Agreement.
"LICENSED AFFILIATE AGREEMENT" means an agreement in the form of the
agreement attached hereto as Exhibit D whereby Citibank or any
Affiliate of Citibank agrees to be bound by the terms and conditions
of this Agreement.
"LICENSE FEE MINIMUM" has the meaning set forth in Section 5.5.
"LICENSED CHANNEL" means any 724 Channel through which the 724
Technology or information capable of being delivered by 724 Technology
can be delivered, as is offered or made available to Licensee and/or
its licensees generally.
"LICENSED MODULES" means the 724 Modules delivering banking and
brokerage information as specified in Exhibit B (and each Update or
Upgrade thereto which Licensee wishes to use in accordance with the
terms thereof) and such other 724 Modules agreed to by the parties in
a particular Licensed Affiliate Agreement.
"LICENSED TECHNOLOGY" means, as set forth in Exhibit B, that part of
the 724 Technology delivered by Licensor and/or its Affiliates to
Licensee from time to time. The Licensed Technology will include all
Client Executable Components needed in connection with a
<PAGE>
- 5 -
724 Channel and/or the devices operated by Customers in order
for the Licensed Technology to be used by Customers. For
greater certainty, Licensed Technology expressly includes
Embedded Third Party Materials and Customizations and excludes
System Requirements, Content and Non-Embedded Third Party
Materials.
"LICENSEE" means each respective Licensed Affiliate.
"LICENSEE SERVICES" means the services delivered by Licensee to its
Customers as supported by the Licensed Technology.
"MAINTENANCE SERVICES" has the meaning set forth in Section 4.1.
"NON-EMBEDDED THIRD PARTY MATERIALS" has the meaning set forth in
Section 2.6(c).
"PARTY" means, in respect of a Licensed Affiliate Agreement, the
relevant 724 Distribution Company or Licensee and "PARTIES" means both
of them and, in the context of this Master Technology License
Agreement, "PARTY" means Licensor or Citibank and "PARTIES" means both
of them.
"PERSON" shall be broadly interpreted and includes an individual,
corporation, partnership, joint venture, trust, association,
unincorporated organization, any Governmental Authority or any other
entity recognized by law.
"724 CHANNELS" means any one or more consumer devices or types of
consumer devices capable of utilizing 724 Technology currently or at
some point in the future (whether based on technology now or hereafter
known) and which includes: game consoles, set-top boxes, a PC plug-in,
wireless telephones, lap top computers, "information appliances"
(whether stand alone or integrated with other devices), or smart
handheld devices such as personal digital assistants. Currently
available 724 Channels include digitally enabled wireless telephones
using a phone.com browser, pc channel, html channel and PalmPilot
connected organizers versions 3.02 OS and higher excluding Palm VII.
"724 DISTRIBUTION COMPANY" means an Affiliate of 724 Solutions
(including Licensor) which may be designated to enter into, and which
has full corporate and contractual right, power and authority to enter
into, a Licensed Affiliate Agreement with a Licensed Affiliate based
on the jurisdiction in which the said Licensed Affiliate carries on
business.
"724 MODULES" means any software applications that (currently or in
the future) are capable of utilizing 724 Technology with any 724
Channel to support the business segments of Banking, Brokerage,
Financial Services, Insurance and E-commerce.
"724 SERVICES" means the Consulting Services and/or the Maintenance
Services performed by Licensor or its Affiliates.
"724 TECHNOLOGY" means all as set forth in Exhibit B (i) the Software
and related documentation, and (ii) Software Upgrades and Updates and
related documentation. 724 Technology also includes any process or
solution Licensor and/or its Affiliates
<PAGE>
- 6 -
implements to provide a Customization and any software developed,
owned, licensed or otherwise generally made available by Licensor
and/or its Affiliates to Licensees and/or its licensees generally from
time to time and any Embedded Third Party Materials.
"SOFTWARE" means the Licensed Modules, Client Executable Components, and
such software as is necessary to utilize a Licensed Channel.
"STATEMENT OF SERVICES" has the meaning set forth in Section 3.1.
"SYSTEM REQUIREMENTS" has the meaning set forth in Section 2.6(a).
"UPDATE" means any process or solution that Licensor and/or its
Affiliates implements to correct defects in any Licensed Technology and
which may include modifications to improve performance or a revised
version or release of Licensed Technology which may incidentally improve
its functionality, but expressly excludes Upgrades.
"UPGRADE" means a new version or release of 724 Technology that improves
the functionality of, or adds functional capabilities to, the Licensed
Technology, and that Licensor and/or its Affiliates (i) makes available
to its licensees generally, or (ii) otherwise makes available to
Licensees. Upgrade also includes any new version or release of 724
Technology that is identified by a new version number.
1.2 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not affect the construction or interpretation
hereof.
1.3 EXTENDED MEANINGS. Words in the singular include the plural and
vice-versa and words in one gender include all genders.
1.4 ENTIRE AGREEMENT. In respect of each Licensed Affiliate, the Parties
agree that the Agreement constitutes the complete and exclusive statement
of the terms and conditions between Licensor (or its Affiliates) and the
Licensed Affiliate pertaining to the performance thereof and cannot be
altered, amended or modified except in writing executed by the Licensor
(or its Affiliates) and the Licensed Affiliate. Each of the Parties
acknowledge that it has not been induced to enter into this Agreement by
any representations not specifically stated herein or in the Support
Agreement entered into by 724 Solutions Inc. and Citicorp Strategic
Technology Corporation on even date herewith.
1.5 INVALIDITY. If any of the provisions contained in this Agreement are
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of
the remaining provisions contained herein shall not be in any way
affected or impaired thereby.
1.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the federal laws of
the United States applicable therein (excluding any conflict of laws rule
or principles that might refer such construction to the laws of another
jurisdiction) and shall be treated, in all respects, as a New York
contract. The Parties agree that the courts of New York shall have
exclusive jurisdiction over claims brought by either Party against the
other Party, and, subject to
<PAGE>
- 7 -
Sections 9.9, 9.10 and 9.11, each Party agrees to bring any legal
proceeding against the other Party only in the courts of New York. If
either Party is permitted to select whether any matter brought before
a court is to be decided by jury or by judge, the Parties agree that
they will not select to have any such matter decided by jury and
hereby waive any such right to a jury trial. Furthermore, the Parties
expressly waive any objection that a matter is brought in an
inconvenient forum when the venue for such matter is a court located
in the borough of Manhattan, New York. The Parties expressly exclude
the application of the United Nations Convention on Contracts for the
International Sale of Goods.
The provisions of this Section 1.6 shall remain in force and effect after
the termination of this Agreement.
1.7 EXHIBITS AND SCHEDULES. The following exhibits and schedules shall form
part of this Agreement:
Exhibit A - License Fee Minimums
Exhibit B - Specifications
Exhibit C - Resource Commitments of 724
Exhibit C-1 - Consulting Services of Citibank
Exhibit D - Form of Source Code Escrow Agreement
Exhibit E - Software Maintenance and Support Services
Exhibit F - Form of Licensed Affiliate Agreement
1.8 INTERPRETATION. In construing this Agreement or determining the rights
of the Parties hereto, no Party shall be deemed to have drafted or
created this Agreement.
1.9 STRUCTURE OF AGREEMENT. Licensor or any 724 Distribution Company agrees
to offer to Affiliates of Citibank the opportunity to license the 724
Technology on the terms and conditions as set forth herein. Any license
of 724 Technology to an Affiliate of Citibank shall be conditional upon
(i) the Affiliate of Citibank not being a Person whose principal business
is the commercial development, marketing or licensing of commercial
products that are competitive with the Licensed Technology, (ii)
Licensor's (or its Affiliates') and Licensee's (or its Affiliates')
ability to procure necessary approvals in accordance with Section 2.7,
and (iii) the execution by the relevant 724 Distribution Company and the
Affiliate of Citibank of a Licensed Affiliate Agreement. In the event
that an Affiliate of Citibank proposes to alter the terms and conditions
set out in this Master Technology License Agreement, then the relevant
724 Distribution Company shall negotiate in good faith with respect
thereto. Each Licensed Affiliate Agreement shall constitute a separate
<PAGE>
- 8 -
agreement between the relevant 724 Distribution Company and the relevant
Licensed Affiliate upon execution of the Licensed Affiliate Agreement by
such Licensed Affiliate and such 724 Distribution Company, the terms of
which shall consist exclusively of the terms and conditions of this
Master Technology License Agreement (as may be amended by the Parties to
the Licensed Affiliate Agreement), and those set forth in the Licensed
Affiliate Agreement. In the event there is any inconsistency between the
terms of Articles I to IX of this Master Technology License Agreement and
the Licensed Affiliate Agreement, the terms of the Licensed Affiliate
Agreement shall prevail to the extent of any such inconsistency.
ARTICLE II
GRANT OF LICENSE
2.1 GRANT OF LICENSE. Subject to the terms and conditions hereof,
Licensor grants to Licensee a non-exclusive, non-transferable license
(other than as expressly provided herein), for the term set out for
Licensee in the Licensed Affiliate Agreement (subject to Article VIII)
to use the Licensed Technology at a Designated Site only for the
purpose of providing and using any services supported by the Licensed
Modules via the Licensed Channels to Customers. Licensee shall also
be permitted to sublicense and distribute the Client Executable
Components of the Licensed Technology to Customers of Licensee as may
be required solely for the personal use by Customers in connection
with any services supported by the Licensed Modules via the Licensed
Channels and Non-Competitive Areas of third parties in support of such
Customers' personal use. The license grant herein includes the right
to make and use back-up copies of the Licensed Technology as
reasonably required to operate the Licensed Technology and/or deliver
information to Customers via Licensed Modules. For clarification, the
delivery of any 724 Technology, present or future, to a Licensed
Affiliate shall be deemed to be a conveyance of a license grant of the
Intellectual Property Rights as specified herein. For clarity, it is
understood that Citibank will not become a Licensee upon executing the
Master Technology License Agreement and can become a Licensee only by
executing a Licensed Affiliate Agreement.
2.2 CONTRACTORS OF LICENSEE. Licensor and its Affiliates shall at no
additional cost to Licensee make or permit Licensee to make the
Licensed Technology available to Non-Competitive Areas of Contractors
of Licensee as required to give effect to this Agreement, provided
that such Non-Competitive Areas agree in writing to not use (other
than on behalf of Licensee) and not to disclose to Competitive Areas
or to third parties any Confidential Information received directly or
indirectly from Licensor, Licensee or any of their Affiliates.
2.3 CUSTOMER LICENSE AGREEMENTS. Licensee shall include substantially the
following in a contract or license between Licensee and each Customer
prior to the time such Customer commences to use the services supported
by the Licensed Modules:
"Customer agrees that it will use the service, and all
related software provided to Customer by the Bank
("Software"), solely to access and use the banking and
<PAGE>
- 9 -
other services provided by the Bank. Customer agrees not
to decompile or reverse engineer the Software. Customer
agrees that the liability of any third party licensor or
supplier to the Bank in the event of any disruption,
interruption or other failure of the Service, or in any
other way related to the Service, will be limited to
Customer's direct damages not to exceed the service fees
paid by Customer for the Service in the 12 months
immediately prior to the event giving rise to the
liability. In no event will any third party licensor or
supplier to the Bank be liable for indirect, consequential
or special damages, including lost profits, even if the
third party licensor or supplier to the Bank is given
notice of them. These limitations apply to all causes of
action, including breach of contract and tort (including
negligence). Customer agrees not to bring any claims
against such licensors or suppliers other than claims
arising out of the gross negligence, willful misconduct or
criminal act of such third party licensor or supplier,
Customer's sole remedy being recovery from the Bank,
subject to the limitations set forth elsewhere herein."
2.4 RESTRICTIONS ON USE. Licensee shall: (a) not transfer, lease, export or
grant a sublicense of the Licensed Technology or the license contained
herein to any Person except as and when authorized to do so herein; (b)
not use the Licensed Technology except as authorized herein; (c) not
disassemble, decompile or otherwise reverse engineer the Licensed
Technology or create Derivative Works based upon the Licensed Technology
or the accompanying documentation except as may be permitted pursuant to
Article III or the Source Code Escrow Agreement between the Parties to be
executed simultaneously with this Agreement in the form attached hereto
as Exhibit D; (d) not use the Licensed Technology to act as a service
bureau, in whole or in part, for any other Person except in respect of
another Licensee; and (e) not permit Competitive Areas or, except as
provided in Section 2.2, a Person whose principal business is the
commercial development, marketing or licensing of commercial products
that are competitive with the Licensed Technology, to have access to the
Licensed Technology.
2.5 OWNERSHIP OF LICENSED TECHNOLOGY. As between Licensor and its Affiliates
and Licensee, Licensee acknowledges and agrees that, except as
specifically provided for in Article III, the Licensed Technology and all
Intellectual Property Rights therein are and shall at all times remain
the exclusive property of Licensor and its Affiliates (including, without
limitation, 724 SRL) and that no rights, title or ownership interest of
any kind whatsoever in the Intellectual Property Rights therein, or any
portion of same, except as provided in this Agreement, shall pass to
Licensee. Licensor acknowledges and agrees that Licensee shall have all
right, title and interest in and to any software or technology and the
Intellectual Property Rights therein that Licensee, its agents or
contractors develop without the involvement of Licensor to work with the
Licensed Technology provided that such software or technology does not
(i) constitute a Derivative Work, in which case Licensor or its
Affiliates shall have all right, title and interest in and to it, subject
to the provisions of Section 3.4 and Licensee shall have a non-exclusive
license and right to use such software or technology on the same terms
and conditions as the Licensed Technology or (ii) infringe the
Intellectual Property Rights of Licensor, 724 Solutions, 724 SRL or any
third party owner of third party materials.
<PAGE>
- 10 -
The provisions of this Section 2.5 shall remain in force and effect after the
termination of this Agreement.
2.6 THIRD PARTY MATERIALS. Licensee acknowledges that certain third party
materials may be required in order to develop, compile, use or operate
the Licensed Technology, and agrees as follows:
(a) SYSTEM REQUIREMENTS. Licensee acknowledges and agrees that
there are a number of essential system components ("System
Requirements") that are external to the Licensed Technology but
required in order to use or operate the Licensed Technology,
including network servers, database components and operating
systems. Licensor will specify all System Requirements to
Licensee in the Licensed Affiliate Agreement. Licensee agrees
that the System Requirements may be amended by Licensor from
time to time in connection with Upgrades only (provided that
Licensee, should it not wish to use such Upgrades requiring
amended System Requirements, will remain able to use the
Licensed Technology other than such Upgrade as permitted
herein), subject to the terms of Exhibit E. Licensor warrants
that System Requirements will consist entirely of components
that are generally available, non-customized and able to be
acquired from Licensed Affiliate-approved vendors. In the
event that components are not so available, Licensee shall
provide Licensor with written notice and Licensor shall be
permitted to specify equivalent alternative System Requirements
that are so available. Subject to the foregoing, Licensee
shall be solely responsible for obtaining or licensing or
otherwise acquiring the System Requirements, and shall be
responsible for all upgrades, updates, maintenance and support
in respect thereof.
(b) EMBEDDED THIRD PARTY MATERIALS. Licensee acknowledges and agrees
that Licensor and/or its Affiliates may, at their sole discretion,
include in the Licensed Technology certain materials which are not
owned by Licensor or any of its Affiliates but which are obtained
or licensed by Licensor and/or its Affiliates from a third party,
embedded in the Licensed Technology, and delivered to Licensee
hereunder together with the Licensed Technology and specified for
use with the Licensed Technology (the "Embedded Third Party
Materials"). Licensor shall provide the Embedded Third Party
Materials to Licensee at no additional cost and shall obtain for
Licensee the right to use such Embedded Third Party Materials at
no additional cost under the same terms and conditions as apply to
the Licensed Technology including representations and warranties
of the vendor to Licensor and/or its Affiliates.
(c) NON-EMBEDDED THIRD PARTY MATERIALS. Licensee acknowledges and
agrees that Licensor and/or its Affiliates may, from time to time,
materially improve the functionality of the Licensed Technology
with or develop new Licensed Technology which may include certain
materials which are not owned by Licensor or its Affiliates but
which are designed to function with the Licensed Technology and
specified for use with the Licensed Technology ("Non-
<PAGE>
- 11 -
Embedded Third Party Materials"). For greater certainty,
Non-Embedded Third Party Materials shall not include materials
(i) included in Updates, or (ii) required to deliver
information using 724 Channels made generally available to
licensees. In the event that Licensee elects to utilize the
Non-Embedded Third Party Materials in conjunction with the
Licensed Technology, Licensee shall cooperate with Licensor to
obtain the necessary licenses or rights to use Non-Embedded
Third Party Materials together with maintenance and support in
connection with such materials on commercially reasonable
terms. Licensor and its Affiliates shall not be required to
provide the Non-Embedded Third Party Materials at no additional
cost and shall not be responsible for ensuring that Licensee
obtain the rights to use such Non-Embedded Third Party
Materials.
2.7 COMPLIANCE WITH EXPORT LAWS. Licensee understands that the Licensed
Technology may include cryptographic technology and other technology that
is subject to restrictions imposed by export controls and other laws and
regulations, and that the export of Licensed Technology may be highly
regulated. Licensee and Licensor shall cooperate to comply with all
applicable export control and other relevant laws and regulations of any
applicable jurisdiction that apply to the Licensed Technology, including
any third party materials, that are used with the Licensed Technology.
Notwithstanding the foregoing, Licensee shall be responsible at its
expense for obtaining all export approvals for the delivery of the
Licensed Technology from Canada to the Designated Site of Licensee,
including U.S. export approval for U.S. origin components or third party
materials as are Licensee's responsibility under applicable law.
Licensor shall be responsible at its expense for obtaining all export
approvals for the delivery of the Licensed Technology from Canada to the
Designated Site of Licensee, including U.S. export approval for U.S.
origin components or third party materials as are Licensor's
responsibility under applicable law.
2.8 DELIVERY. Licensor shall deliver to Licensee the Licensed Technology in
object code form executable on the System Requirements by the date set
out in the Licensed Affiliate Agreement. Licensee shall have the right
to require delivery by means of electronic transmission subject to the
following provisions:
(a) Licensee shall provide and designate to Licensor a secure FTP site
for the transmission; and
(b) Licensee shall assume full responsibility for any interception,
breach of confidentiality, theft or other unauthorized disclosure
or use of Confidential Information of Licensor and/or its
Affiliates arising or resulting from such electronic transmission,
provided that Licensor substantially complies with the reasonable
information security specifications for the transmission that
Licensee proposes. [****]
2.9 AUDIT. Licensee shall keep accurate records of the number of Customers
using the Licensed Technology. Upon ten Business Days notice, Licensor shall be
entitled to have its representatives attend at the offices of Licensee to review
and audit these records to
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 12 -
ensure compliance by Licensee with the terms of this Agreement. If
any such review demonstrates a material breach of this Agreement, the
cost of such review shall be borne by Licensee, with Licensor
personnel being charged at the Consulting Services rates in the
Licensed Affiliate Agreement. Notwithstanding the above, Licensor
shall not be entitled to conduct more than three (3) reviews in any
twelve (12) month period, unless at least one such review in such
twelve (12) month period demonstrates a material breach of this
Agreement.
The provisions of this Section 2.9 shall remain in force and effect after
the termination of this Agreement.
ARTICLE III
CONSULTING SERVICES
3.1 CONSULTING SERVICES. Upon the mutual agreement of the Parties, Licensor
(or the 724 Distribution Company as the case may be) or its
subcontractors and agents will perform certain services for Licensee,
such as consulting, development, testing, implementation, integration,
installation, Content organization and administration, software
customization, training and education (collectively, the "Consulting
Services"), as specified in work plans or an agreement ("Statement of
Services") signed by the Parties from time to time. Each Statement of
Services shall incorporate the terms of this Agreement by reference as is
appropriate in the circumstances.
3.2 PRINCIPAL CONTACT. Licensee shall designate one of its employees with
sufficient authority to approve expenditures for Consulting Services, who
shall act as Licensee's principal contact with Licensor (or the 724
Distribution Company, as the case may be) for all Consulting Services to
be provided to Licensee hereunder. All contact with Licensor and all
requests for Consulting Services at any of Licensee's locations shall be
through such designated contact. Licensee may change any designated
employee at any time by notifying Licensor of such change in writing.
Upon a request for Consulting Services by Licensee, Licensor (or the 724
Distribution Company, as the case may be) shall promptly notify Citibank
of the particulars of such request for informational purposes only.
3.3 FEES. The Statement of Services shall set out the fees to be paid by
Licensee for the Consulting Services to be provided under such Statement
of Services. The Statement of Services will also list resources to be
provided by Licensee in order to permit Licensor (or the 724 Distribution
Company, as the case may be) to perform the Consulting Services.
Licensee acknowledges that failure to provide these resources will
adversely impact Licensor's (or the 724 Distribution Company's, as the
case may be) ability to provide the Consulting Services.
3.4 INTELLECTUAL PROPERTY RIGHTS.
(a) Unless otherwise expressly provided in the Statement of Services,
724 SRL shall own all Intellectual Property Rights in the software
and other materials directly
<PAGE>
- 13 -
resulting from the Consulting Services (including
Customizations). In order to give effect to the above,
Licensee hereby irrevocably sells, assigns, grants and
transfers to 724 SRL all of Licensee's worldwide right, title
and interest in such Customization and all related Intellectual
Property Rights provided, however, that to the extent
Confidential Information of Licensee is incorporated in or used
in connection with such resulting software and other materials,
ownership of and all rights in such Licensee Confidential
Information shall remain with Licensee. Licensee shall further
execute any document and do all such acts that Licensor may
reasonably require to effectively carry out the intent of this
Section 3.4(a).
(b) If a Statement of Services expressly provides that Licensee shall
own all Intellectual Property Rights resulting from the Consulting
Services (including Customizations), then in order to give effect
to this Section 3.4(b), Licensor hereby irrevocably sells,
assigns, grants and transfers to Licensee all of Licensor's
worldwide right, title and interest in such Customization,
software and other materials directly resulting from Consulting
Services and all related Intellectual Property Rights.
Notwithstanding the above, if the use of such Customization is
necessary to deliver a 724 Channel (i.e., the Customization is an
Embedded Third Party Material), the Licensee shall grant to the
Licensor and/or its Affiliates an irrevocable, unrestricted,
nonexclusive, worldwide, royalty free, paid-up license under such
Intellectual Property Rights. For greater certainty, the
preceding license shall include the unrestricted rights to make,
have made, use, sell, lease or otherwise transfer any apparatus,
and to practice any method, covered by the Intellectual Property
Rights. The preceding license shall also include the right to
reproduce and to prepare derivative works from the works covered
by the Intellectual Property Rights. Such license also includes
the right to grant sub-licenses to any of the Affiliates of the
Licensor. However, nothing in this Section 3.4(b) shall be
construed to grant any license or right in any Licensee
Confidential Information.
Whether 724 SRL or Licensee owns the Intellectual Property Rights
in the software and other materials directly resulting from the
Consulting Services (including Customizations), Licensee shall be
entitled to have a period of six (6) months of exclusive
commercial use before Licensor and/or its Affiliates may offer
such software and other materials, including derivative works or
work products for use by any third party, and Licensor hereby
agrees to such exclusivity. During such six (6) months period,
Licensor shall not disclose or make available for review such
software and other materials, including derivative works or work
products to any third party. The six (6) months exclusivity period
shall begin on the date such software and other materials are made
available to Licensee for use.
The provisions of this Section 3.4 shall remain in force and effect
after the termination of this Agreement.
3.5 ACCESS TO SOURCE CODE.
<PAGE>
- 14 -
(a) NO OTHER ACCESS. Except as provided in clause (b) hereof and in
the Source Code Escrow Agreement to be entered into in the form
attached as Exhibit D contemporaneously with the first Licensed
Affiliate Agreement, Licensee shall not be entitled to access the
source code for the Software.
(b) LIMITED ACCESS TO SOURCE CODE. If each and every one of the
following conditions (the "Access Conditions") is satisfied,
Licensee will be entitled to access and use limited portions of
the source code of the Licensed Technology (the "Source Code") in
accordance with clause (c) hereof. The Access Conditions are:
(i) Licensee is not in arrears on any non-disputed payment
due hereunder; and
(ii) Licensee has requested in writing a specific
customization (the "Customization") to the Licensed
Technology that does not involve a modification to the
core architecture of the Licensed Technology, or if it
does involve a modification to the core architecture of
the Software, the Customization involves a 724 Channel
that is not a Licensed Channel; and
(iii) neither Licensor (or its Affiliates) nor an
implementation/consulting partner of Licensor or its
Affiliates reasonably acceptable to Licensee has the
personnel, resources or willingness to complete the
Customization under reasonable commercial terms within
six months of the commencement of the project, provided,
however, Citibank shall cooperate with Licensor (or its
Affiliates) in retaining an implementation/consulting
partner of Licensor or its Affiliates on reasonable
commercial terms; and
(iv) there exists at the time of the Licensee request no
Licensor provided tool kit or utility, or commercially
available at reasonable cost tool kit or utility that
would permit Licensee's technical staff to implement the
Customization without access to the Source Code.
(c) TERMS OF SOURCE CODE ACCESS. If the Access Conditions are met,
Licensee may request, and Licensor shall deliver or cause to be
delivered to Licensee at a single premises of Citibank in the
United States or Canada (the "Licensed Premises") that portion of
the Source Code (the "Licensed Source Code") reasonably required
to develop the Customization. The following terms shall apply to
the Licensed Source Code:
(i) Licensee and/or a Contractor of Licensee will have a
limited use, temporary, non-exclusive and
non-transferable license to use the Licensed Source
Code solely to develop the Customization at the
Licensed Premises and implement the object code version
of the Customization at the Designated Site and, to the
extent the Customization includes Client Executable
Components, on Customers' devices or at Non-Competitive
Areas as required pursuant to Section 2.1. Licensee
will make no other use of the Licensed Source Code;
<PAGE>
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(ii) Licensee and/or a Contractor of Licensee will use the
Licensed Source Code only at the Licensed Premises and
will not remove the Licensed Source Code from the
Licensed Premises;
(iii) Licensee and/or a Contractor of Licensee will keep the
Licensed Source Code under tight security, both physical
and computer based, while at the Licensed Premises.
Physical security includes keeping hard copy of the
Licensed Source Code in a locked filing cabinet, in a
locked room, when not being used. Computer Security
includes using the Licensed Source Code only on a stand
alone computer not connected to any Licensee network or
the Internet at the time of such use;
(iv) only employees of Licensee and/or a Contractor of
Licensee will have access to the Licensed Source Code,
and each such employee, before being given access, must
sign a non-disclosure and proprietary rights ownership
agreement with Licensee and Licensor and/or its
Affiliates in a form reasonably acceptable to Licensor
and/or its Affiliates;
(v) Licensee agrees to be responsible for, and hereby agrees
to indemnify Licensor and/or its Affiliates, subject to
the provisions of Article VI, from any loss, cost, damage
or expense incurred by Licensor and/or its Affiliates as
a result of any unauthorized third party (including a
Contractor of Licensee) obtaining access to the Licensed
Source Code through the acts or omissions of Licensee.
Licensee will notify Licensor immediately if it is aware
of any unauthorized access to or use of the Licensed
Source Code;
(vi) as soon as Licensee has completed the development and
implementation of the Customization, Licensee will
promptly return to Licensor the Licensed Source Code and
all copies thereof; and
(vii) prior to delivery of the Licensed Source Code, Citibank
provides Licensor and/or its Affiliates with an
unconditional and irrevocable guarantee or its reasonable
equivalent of the obligations of Licensee under this
Section 3.5(c).
The material breach by Licensor and/or its Affiliates of this Section
3.5(c) shall be a Release Condition as defined in the Source Code Escrow
Agreement.
(d) NO SUPPORT. Unless otherwise agreed to in writing by the Parties,
Licensor or its Affiliates shall have no responsibility to provide
Licensee with maintenance, support or other services in respect of
any Customization developed by Licensee pursuant to this Section
3.5 that is not also an Embedded Third Party Material. Licensor
or its Affiliates shall also not be responsible for errors or
problems in the Licensed Technology caused by such Customization,
and to the extent Licensor or its Affiliates spends time
diagnosing or attempting to correct such errors, Licensor or its
Affiliates shall be entitled to charge extra for such services at
its then prevailing hourly rates. If Licensor or its Affiliates
do not agree to maintain and
<PAGE>
- 16 -
support a Customization developed by Licensee pursuant to this
Section 3.5, Licensee may itself or through a Contractor of
Licensee maintain and support such Customization and will have
the limited access to the Source Code provided in this Section
3.5 solely to provide such maintenance and support, provided
Licensee agrees to use reasonable efforts to limit the number
of Contractors of Licensee under this Section 3.5(d).
(e) OTHER PROVISIONS. The Parties agree that the provisions in
Sections 2.8, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8 and 7.1 shall apply to
the Licensed Source Code.
ARTICLE IV
MAINTENANCE SERVICES
4.1 PROVISION OF MAINTENANCE SERVICES. Subject to the exclusions set out in
Section 4.2 and 4.3 and the payment by Licensee to the designated 724
Distribution Company of the relevant Maintenance Fees and other charges
provided for herein, Licensor and/or its Affiliates or their contractors,
agents, employees and representatives that have been approved by Licensee
(such approval not to be unreasonably withheld) shall provide to Licensee
the Maintenance Services described in Exhibit E in respect of the 724
Technology during the term of the license granted hereunder. Licensee
shall obtain Maintenance Services from Licensor or its Affiliates for as
long as Licensee uses the Licensed Technology.
4.2 EXCLUSIONS. Licensor shall not be required to provide Maintenance
Services:
(a) to any Person other than Licensee; and
(b) in respect of any software or technology that is not the Licensed
Technology.
4.3 THIRD PARTY MATERIALS. Licensor (and its Affiliates) shall not be
responsible for providing Maintenance Services in respect of System
Requirements and Non-Embedded Third Party Materials. However, Licensor
shall use reasonable commercial efforts to make any warranty or
maintenance services of the licensor of any Non-Embedded Third Party
Materials available to the Licensed Affiliates on reasonable commercial
terms.
ARTICLE V
FEES & PAYMENT TERMS
5.1 FEES AND CHARGES. Licensee agrees to pay to the designated 724
Distribution Company the fees set out in the Licensed Affiliate
Agreement.
5.2 TRAVEL EXPENSES AND OTHER CHARGES. If Licensee requests that staff of
Licensor or its Affiliates travel outside of Metro Toronto (or, with
respect to a 724 Distribution Company, outside a 50 mile radius from such
724 Distribution Company) for the purpose of providing services to
Licensee, Licensee shall reimburse Licensor (or provide payment
<PAGE>
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as Licensor may direct) for reasonable travel expenses, approved in
advance in writing, on a cost basis, including transportation, living
and communications costs, which fees and costs shall be paid by
Licensee within thirty (30) days of receipt of an invoice from
Licensor for such amounts. Licensee shall be solely responsible for
any fees or charges associated with the Content delivered by means of
the Licensed Technology.
5.3 LATE FEES. Licensee shall pay all undisputed invoices within 60 days of
the date of the invoice. Where Licensee fails to pay any amount when
due, Licensor (or the designated 724 Distribution Company as the case may
be) shall have the right, in addition to any other remedies, to charge,
and Licensee shall pay, interest on such overdue amounts at the rate of
[****] per month, compounded monthly ([****] per annum).
5.4 TAXES.
(a) In addition to all charges hereunder, Licensee shall pay to
Licensor (or the designated 724 Distribution Company) all taxes,
duties, and other such governmental assessments or charges which
may be assessed, levied or imposed in connection with this license
of the Licensed Technology, the use of the Services and any other
charges or services hereunder, except taxes based on 724's income
and capital. If Licensee pays any taxes hereunder for which 724
subsequently receives a refund, 724 shall pay such refund to
Licensee.
(b) Without limiting the generality of the foregoing, all payments by
Licensee under this Agreement shall be made free and clear of, and
without deduction for, any and all present or future taxes or
withholdings imposed on or with respect to such payments, and all
interest, penalties and other liabilities with respect thereto
(all such taxes or withholdings being hereinafter referred to as
"Amounts"). If Licensee is required by law to deduct any such
Amount from payments or in respect of any sum payable hereunder,
and remit such Amount to a relevant taxing authority:
(i) the sum payable by Licensee to Licensor (or the
designated 724 Distribution Company) shall be increased
as may be necessary so that after making all required
deductions (including deductions applicable to additional
sums payable under this Section 5.4(b)(i)), Licensor (or
the designated 724 Distribution Company) receives an
amount equal to the sum it would have received had no
deduction been made;
(ii) Licensee shall make such deductions;
(iii) Licensee shall pay and remit the full amount deducted to
the relevant taxation authority in accordance with
applicable law; and
(iv) within 30 days after the date of payment or remittance of
Amounts to the relevant taxation authority referred to in
Section 5.4(b)(iii), Licensee will furnish to Licensor
(or the designated 724 Distribution Company) the
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 18 -
original or a certified copy of any receipt furnished
by the relevant taxing authority evidencing payment
thereof.
5.5 CITIBANK LICENSE FEE MINIMUMS. Citibank or an Affiliate shall pay to
Licensor certain minimum amounts ("License Fee Minimums") in respect of
License Fees to be earned (and not necessarily collected) pursuant to
Licensed Affiliate Agreements entered into by the designated 724
Distribution Company and Licensed Affiliates. The License Fee Minimums
shall be paid to Licensor in accordance with the terms of Exhibit A
attached hereto. Licensor and its Affiliates covenant and agree that
they shall: (i) exert commercially reasonable efforts to enter into
Licensed Affiliate Agreements; (ii) act in a commercially reasonable
manner in the negotiation and execution of all Licensed Affiliate
Agreements, provided that all license fees in respect thereof shall be
determined by the Parties to the Licensed Affiliate Agreement each in
their absolute discretion; and (iii) provide the resource requirements
set forth in Exhibit C.
5.6 CITIBANK CONSULTING SERVICES. Licensor shall pay to Citibank and
Citibank shall provide to Licensor and its Affiliates the resources and
services set out in Exhibit C-1 attached hereto in accordance with the
terms and conditions set out therein.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATIONS AND WARRANTIES OF LICENSOR. Licensor represents and
warrants to Licensee as set out in the following Subsections of this
Section 6.1 and acknowledges that Licensee is relying upon such
representations and warranties.
(a) CORPORATE MATTERS.
(i) Licensor is a corporation duly amalgamated, organized,
validly existing and in good standing under the laws of
the State of Delaware. No proceedings have been taken or
authorized by Licensor or by any other Person with
respect to the bankruptcy, insolvency, liquidation,
dissolution or winding-up of Licensor or with respect to
any merger, consolidation, arrangement or reorganization
relating to Licensor.
(ii) Licensor and/or its Affiliates have all necessary right
and authority to execute and deliver, and to observe and
perform its covenants and obligations under, this
Agreement. Licensor has taken all corporate action
necessary to authorize the execution and delivery of, and
the observance and performance of its covenants and
obligations under this Agreement.
(iii) This Agreement has been duly executed and delivered by
Licensor and constitutes a valid and legally binding
obligation of Licensor enforceable against Licensor in
accordance with its terms.
<PAGE>
- 19 -
(iv) Licensor has all necessary corporate power and authority
to own or lease its assets and to carry on its business
as now and heretofore carried on. Licensor has conducted
and is conducting its business in compliance with
applicable law in all material respects. Licensor
possesses all governmental licenses material to the
conduct of its business and the ownership of its assets,
such governmental licenses are in full force and effect,
are not in default, and there are no proceedings in
progress or pending or, to its knowledge, threatened,
which may result in revocation, cancellation, suspension
or any adverse modification of any of such licenses.
(v) None of the execution and delivery of, or the observance
and performance by Licensor of any covenant or obligation
under this Agreement contravenes or results in, or will
contravene or result in, a violation of or a default
under (with or without the giving of notice or lapse of
time, or both) or in the acceleration of any obligation
under any applicable law, under the articles, by-laws,
directors' or shareholders' resolutions of Licensor or
under any agreement, lease, note, bond, indenture, deed
of trust, mortgage, security document, obligation or
instrument to which Licensor is a party or by which it is
bound.
(b) OWNERSHIP. Licensor and/or its Affiliates either own or license
the Intellectual Property Rights in the 724 Technology and has the
right to grant the licenses in Section 2.1 hereof.
(c) INFRINGEMENT. To the knowledge of Licensor there is no:
(i) claim of adverse ownership or invalidity or other
opposition to or conflict with ownership of the patents,
copyright, trade marks or trade secrets forming part of
the 724 Technology by Licensor and/or its Affiliates or
the manner it is used in respect of the business of
Licensor and/or its Affiliates, nor are there any such
claims with respect to any other Intellectual Property
Right forming part of the 724 Technology; or
(ii) pending or threatened suit, proceeding, claim, demand,
action or investigation of any nature or kind against
Licensor and/or its Affiliates relating to the 724
Technology or the manner it is used in respect of its
business; or
(iii) claim or circumstance of which Licensor and/or its
Affiliates has received notice (formal or informal) or is
otherwise aware that:
(1) any products, software or services manufactured,
produced, used, marketed, licensed or sold by
Licensor or its Affiliates; or
(2) any process, method, packaging, advertising, or
material that Licensor or its Affiliates employs in
the manufacture, production,
<PAGE>
- 20 -
use, marketing, licensing or sale of any such
product, software or service; or
(3) the use of any of the 724 Technology,
breaches, violates, infringes or interferes with any
rights of any Person or requires payment for the use of
any patent, copyright, trade mark or trade secret,
know-how or technology of another Person or any other
Intellectual Property Right of any Person.
(d) NO CONFLICTING AGREEMENTS. Licensor or its Affiliates is not
under and will not assume any contractual or legally enforceable
obligation that conflicts with its obligations or the rights
granted in this Agreement.
(e) VIRUS WARRANTY. Licensor warrants that it will use all
commercially reasonable efforts to ensure that all 724 Technology
or any material component thereof delivered to Licensee is, at the
time of shipment to Licensee, free of any known computer software
viruses.
(f) DISABLING DEVICES. The 724 Technology does not contain any back
door, time bomb, worm, Trojan horse, software lock, drop-dead
device or other software routine designed to disable the 724
Technology or any material component thereof or damage, alter,
erase, harm or impair access to Licensee's data, systems or
software.
(g) SOFTWARE WARRANTY. Provided that all System Requirements are
adhered to by Licensee, Licensor warrants that for a period of
[****] after the delivery of the Licensed Technology to
Licensee (the "Warranty Period"), the Software and software
components of the Licensed Technology, will work in accordance
with the Specifications set out in Exhibit B in all material
respects. Licensee's sole remedy, and Licensor's sole
liability, for a breach of this warranty not constituting a
breach of any other warranty or provision of this Agreement, is
to have Licensor at Licensor's expense promptly correct any
non-conformities in such software reported during the Warranty
Period by Licensee to Licensor in accordance with the response
times set out in Exhibit E.
(h) THIRD PARTY MATERIALS. Licensor and/or its Affiliates has all
rights necessary to include the Embedded Third Party Materials in
the Licensed Technology delivered to Licensee hereunder and to
permit use of such Embedded Third Party Materials by Licensee as
provided herein. Licensor and/or its Affiliates has all rights
necessary to use Non-Embedded Third Party Materials in connection
with the Licensed Technology delivered to Licensee hereunder.
6.2 REPRESENTATIONS AND WARRANTIES OF CITIBANK. Citibank represents and
warrants to Licensor as set out in the following Subsections of this
Section 6.2 and acknowledges that Licensor is relying upon such
representations and warranties.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 21 -
(a) Citibank is a corporation duly amalgamated, organized, validly
existing and in good standing under the laws of Delaware. No
proceedings have been taken or authorized by Citibank or by any
other Person with respect to the bankruptcy, insolvency,
liquidation, dissolution or winding-up of Citibank or with respect
to any merger, consolidation, arrangement or reorganization
relating to Citibank.
(b) Citibank and/or its Affiliates have all necessary right and
authority to execute and deliver, and to observe and perform its
covenants and obligations under, this Agreement. Citibank has
taken all corporate action necessary to authorize the execution
and delivery of, and the observance and performance of its
covenants and obligations under this Agreement.
(c) This Agreement has been duly executed and delivered by Citibank
and constitutes a valid and legally binding obligation of Citibank
enforceable against Citibank in accordance with its terms.
(d) Citibank has all necessary corporate power and authority to own or
lease its assets and to carry on its business as now and
heretofore carried on. Citibank has conducted and is conducting
its business in compliance with applicable law in all material
respects. Citibank possesses all governmental licenses material
to the conduct of its business and the ownership of its assets,
such governmental licenses are in full force and effect, are not
in default, and there are no proceedings in progress or pending
or, to its knowledge, threatened, which may result in revocation,
cancellation, suspension or any adverse modification of any of
such licenses.
(e) None of the execution and delivery of, or the observance and
performance by Citibank of any covenant or obligation under this
Agreement contravenes or results in, or will contravene or result
in, a violation of or a default under (with or without the giving
of notice or lapse of time, or both) or in the acceleration of any
obligation under any applicable law, under the articles, by-laws,
directors' or shareholders' resolutions of Citibank or under any
agreement, lease, note, bond, indenture, deed of trust, mortgage,
security document, obligation or instrument to which Citibank is a
party or by which it is bound.
6.3 EXCLUSION OF OTHER WARRANTIES. Except as otherwise expressly stated
herein, there are no express or implied warranties or conditions in
relation to any Licensed Technology, documentation, services or products
that are the subject matter of this Agreement, including any implied
warranties or conditions of merchantable quality or fitness for a
particular purpose and those otherwise arising by statute or otherwise in
law, or from a course of dealing or usage of trade.
6.4 LIMITATION OF LIABILITY. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, IN NO
CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR LOSS OF
PROFITS, LOSS OF BUSINESS REVENUE, FAILURE TO REALIZE EXPECTED SAVINGS,
OTHER COMMERCIAL OR ECONOMIC LOSS OF ANY KIND WHATSOEVER, NOR SHALL
EITHER PARTY BE LIABLE TO THE OTHER
<PAGE>
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FOR ANY INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT
INCLUDING IN CONNECTION WITH USE (OR INABILITY TO USE) OR PERFORMANCE
OF THE LICENSED TECHNOLOGY, DOCUMENTATION, SERVICES OR PRODUCTS THAT
ARE THE SUBJECT MATTER OF THIS AGREEMENT, EVEN IF ADVISED OF THE
POSSIBILITY OF SAME AND REGARDLESS OF THE CAUSE OF ACTION (INCLUDING
BREACH OF CONTRACT, INCLUDING MATERIAL BREACH, AND NEGLIGENCE).
LICENSOR SHALL NOT BE LIABLE FOR ANY CLAIMS AGAINST LICENSEE BY ANY THIRD
PARTIES, INCLUDING CUSTOMERS EXCEPT WHERE SUCH CLAIM ARISES OUT OF OR IS
CAUSED BY THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR CRIMINAL ACT OF
LICENSOR AND/OR ITS AFFILIATES, SUBJECT TO THESE DAMAGES LIMITATIONS.
LICENSOR DOES NOT WARRANT THAT THE BUSINESS RESULTS OBTAINED FROM THE USE
OF THE LICENSED TECHNOLOGY WILL BE APPROPRIATE OR ADEQUATE FOR LICENSEE.
LICENSOR SHALL NOT HAVE ANY LIABILITY WITH RESPECT TO SYSTEM REQUIREMENTS
AND NON-EMBEDDED THIRD PARTY MATERIALS OTHER THAN AS SPECIFIED IN
SUBSECTIONS 6.1(H), WHETHER OR NOT SUCH MATERIALS ARE INCLUDED IN THE
LICENSED TECHNOLOGY.
THE LIMITATIONS OF LIABILITY SET OUT IN THIS SECTION 6.4, SHALL APPLY TO
ALL AFFILIATES OF LICENSOR THAT PROVIDE SOFTWARE OR SERVICES PURSUANT TO
THIS AGREEMENT.
6.5 LIMITATION OF DIRECT DAMAGES. Except for Sections 6.6, 6.7 and 6.8,
respectively, the liability of Licensor (and its Affiliates) and Licensee
hereunder will be limited to direct damages.
Licensor's and its Affiliates' liability for direct damages, if any,
whether based on negligence, breach of contract (whether or not a
material breach), warranty or other legal theory, will not exceed an
amount equal to:
(a) if the liability arises from the Consulting Services performed by
Licensor or an Affiliate under a Statement of Services, [****];
and
(b) for any other liability, [****] immediately prior to the event
giving rise to the liability;
(c) provided however, Licensee shall not be entitled to claim damages
under more than one of Sections 6.5(a) and 6.5(b) hereof for any
given event of liability.
Licensee's liability for direct damages, if any, whether based on
negligence, breach of contract (including material breach), warranty or
other legal theory will not exceed an
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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amount equal to [****] immediately prior to the event giving rise
to liability.
6.6 EXCLUSIONS FROM LIMITATIONS. The Parties agree that the limitations in
Sections 6.4 and 6.5 shall not apply to the following:
(a) (a) any claim by Licensor against Licensee for payment of
license fees, maintenance fees and consulting fees, so long as
such claims are limited to the amount of the Consulting Fees
pursuant to Section 3.3, Maintenance Fees pursuant to Section 4.1
and fees pursuant to Article V other than Section 5.5 due Licensor
and/or its Affiliates from any Licensee;
(b) any claim by Licensor against Citibank for payment of any fees
payable to Licensor so long as such claims are limited to the
amount of the fees calculated pursuant to Section 5.5 due Licensor
and/or its Affiliates from Citibank;
(c) any claim by Licensor against Licensee for a breach of Sections
2.1, 2.3 and/or 2.4 so long as Licensor's financial claim is
limited to the amount Licensor would have otherwise charged the
unauthorized third party on whose behalf the Licensed Technology
is used or copied based on Licensor's then prevailing rates for
customers of comparable size and circumstances; and
(d) any claim under Sections [****], provided that each Party's
total liability for damages, if any, arising out of a breach
of Sections [****] (individually) shall not exceed [****].
6.7 INDEMNITY BY LICENSOR. Notwithstanding the limitations in Sections 6.4
and 6.5, other than for claims arising out of the gross negligence,
willful misconduct or criminal act of Licensee, or its agents or
employees, Licensor and/or 724 Solutions will hold harmless, defend and
indemnify Licensee and each of its employees, officers, directors and
agents from and against any claims, lawsuits, or demands of third parties
that the Licensed Technology infringes any patent, copyright, trade
secret or trade-mark right of any Person or any breach by Licensor, its
Affiliates, agents or employees, of Section 3.4 hereof, and Licensor
and/or 724 Solutions will pay resulting costs, damages and reasonable
legal fees finally awarded by a court (or related settlement costs),
provided that:
(a) Licensee promptly notifies Licensor in writing of the claim;
(b) Licensee co-operates at Licensor and/or 724 Solutions' expense
with Licensor in the defense of such claim;
(c) Licensor (or one or more of its Affiliates) has sole control of
the defense and all related settlement negotiations provided that
Licensor and/or its Affiliates conducts the defense or settlement
negotiations diligently and that any such settlement has no
material adverse effect on Licensee. Notwithstanding the
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 24 -
above, Licensee shall have the right to its own counsel and the
ability to participate in the defense;
(d) Licensee has no authority to settle any claim on behalf of
Licensor and/or its Affiliates; and
(e) in the event of a patent infringement claim, the Licensed
Technology is a material part of the claim.
If Licensor does not inform Licensee within ten (10) business days after
receipt of notice of any such claim of its decision to defend and of the
identity of counsel retained for the defense, Licensee may retain counsel
and conduct the defense of the claim as it may in its discretion deem
proper, at Licensor's or 724 Solution's cost and expense. In effecting
the settlement of the claim, Licensee shall act in good faith, shall
consult with Licensor and shall enter into only such settlement as
Licensor approves (which approval shall not be unreasonably withheld and
which shall be implied if Licensor does not respond within ten (10)
calendar days after Licensee notifies Licensor of the proposed
settlement).
If such claim has occurred, or in Licensor's opinion is likely to
occur, Licensee agrees to permit Licensor at Licensor's option and
expense, either to procure for Licensee the right to continue using
the Licensed Technology or to replace or modify the same so that it
becomes non-infringing without loss of functionality and providing the
Licensed Technology as replaced or modified remains in compliance with
Exhibit B. If neither of the foregoing alternatives is available to
Licensor on reasonable commercial terms, Licensor may terminate this
Agreement and Licensee's use of the Licensed Technology, provided
Licensor refunds to Licensee an amount equal to (i) the license fees
paid by Licensee to Licensor hereunder less (ii) an amount equal to 4%
of such fees for each month between the date Licensor delivered the
Licensed Technology and the termination date.
Licensor shall have no obligation to defend Licensee or to pay costs,
damages or legal fees for any claim based upon:
(i) versions of the Licensed Technology that have been
altered or modified solely by Licensee without the
assistance of Licensor and/or its Affiliates if such
infringement would have been avoided by the use of the
unaltered version thereof; or
(ii) the combination, operation or use of any Licensed
Technology with non-Licensed Technology other than
Embedded Third Party Materials if such infringement would
have been avoided but for such combination, operation or
use; or
(iii) use of Customizations developed pursuant to a Statement
of Services, unless Licensor makes such Customizations
generally available to licensees as provided herein.
<PAGE>
- 25 -
6.8 INDEMNIFICATION BY LICENSEE. Notwithstanding the limitations in Sections
6.4 and 6.5, other than (i) for claims arising out of the gross
negligence, willful misconduct or criminal act of, or any breach of
Section 3.4 hereof by Licensor and/or its Affiliates, agents or employees
or (ii) any claims, lawsuits, or demands that the Licensed Technology
infringes any patent, copyright, trade secret or trade-mark right of any
Person, Licensee will hold harmless, defend and indemnify Licensor and/or
its Affiliates, and each of their employees, officers, directors, agents,
licensees and customers from and against any claims, lawsuits, or demands
of third parties that directly arise from the use of the Licensed
Technology, Content or the Licensee Services by Licensee or its
Customers, or any non-payment of taxes required under Section 5.4 hereof,
or any breach by Licensee, its agents or employees of Section 3.4 hereof,
provided that:
(a) Licensor and/or its Affiliates provide prompt written notice of
the claim to Licensee;
(b) Licensor and/or its Affiliates co-operates at Licensee's expense
with Licensee in the defense of such claim;
(c) Licensor and/or its Affiliates affords Licensee sole control of
the defense and all related settlement negotiations, provided
Licensee conducts the defense or settlement negotiations
diligently and that any proposed settlement has no material
adverse effect on Licensor and/or its Affiliates; and
(d) Licensor and/or its Affiliates do not attempt to settle any claim
on behalf of Licensee.
If Licensee does not inform Licensor within ten (10) business days after
receipt of notice of any such claim of its decision to defend and of the
identity of counsel retained for the defense, Licensor may retain counsel
and conduct the defense of the claim as it may in its discretion deem
proper, at Licensee's cost and expense. In effecting the settlement of
the claim, Licensor shall act in good faith, shall consult with Licensee
and shall enter into only such settlement as Licensee approves (which
approval shall not be unreasonably withheld and which shall be implied if
Licensee does not respond within ten (10) calendar days after Licensor
notifies Licensee of the proposed settlement).
The provisions of this Article VI other than Section 6.1 shall remain in
force and effect after the termination of this Agreement.
ARTICLE VII
CONFIDENTIALITY AND NON-SOLICITATION
7.1 CONFIDENTIAL INFORMATION. Each party who receives Confidential
Information (referred to in this Section 7.1 as the "Receiving Party") of
the other Party (referred to in this Section 7.1 as the "Disclosing
Party") shall hold such Confidential Information in trust and confidence
for and on behalf of the Disclosing Party and shall not, except as
expressly authorized hereunder or in writing by the Disclosing Party,
use, copy or
<PAGE>
- 26 -
disclose to any third party any Confidential Information so
received. Each Receiving Party shall take appropriate action by
instruction, agreement or otherwise to ensure that its directors,
officers, employees, consultants and agents are required to keep
confidential all Confidential Information of the Disclosing Party which
is disclosed to or comes into the possession of any of them. The
Receiving Party agrees to obtain from any independent contractor, agent
or other Person to whom disclosure of the Disclosing Party's Confidential
Information is made in carrying out such purposes, a written covenant not
to further disclose or make use of any of the Disclosing Party's
Confidential Information in any manner whatsoever. Licensee agrees it
will not permit those consultants or agents to have access to
Confidential Information of Licensor and its Affiliates where such
parties are Competitors of Licensor and/or its Affiliates.
7.2 NON-SOLICITATION OF EMPLOYEES. During the term of this Agreement and
the [****] period thereafter, neither Licensor or its Affiliates nor
any business group within Licensee that works directly with Licensor
or its Affiliates (referred to as "OBLIGEE" for the purposes of this
Section 7.2) nor any of their Affiliates shall either individually or
in partnership or in conjunction in any way with any person or
persons, whether as principal, agent, consultant, shareholder,
guarantor, creditor or in any other manner whatsoever actively solicit
or endeavor to entice away from the other Obligee or its Affiliates,
any person employed or retained as a full time consultant by the other
Obligee or its Affiliates at the date that this Agreement is
terminated for any reason, or who was so employed or retained at any
time during the previous one year period or interfere in any way with
the employment or other relationship between any such person and the
other Obligee and its Affiliates. The provisions of this Section 7.2
shall not apply if any one of the events listed in Section 8.4
(Business Termination) occurs, and shall not apply to newspaper and
any other generally available recruiting activities conducted by an
Obligee provided that the Obligee does not expressly address any such
recruiting activities at an employee of the other Obligee.
7.3 SECURITY. Licensor and its Affiliates acknowledge that the Licensed
Technology will comply with the security policies delivered to
Licensor on the date hereof (the "Security Standards"), which Security
Policies may be amended by Citibank from time to time with 90 days
written notice to Licensor. [****]
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 27 -
7.4 PRIVACY. Licensor and its Affiliates, in the provision of Consulting
Services or Maintenance Services, shall comply with Citibank's privacy
policies delivered to Licensor on the date hereof (the "Privacy
Policies") which Privacy Policies may be amended by Citibank from time
to time with 90 days written notice to Licensor. Furthermore, to
Licensor's and/or its Affiliates' best knowledge, the Licensed
Technology, in its normal usage, does not violate such Privacy
Policies. [****] As between Licensor and its Affiliates and
Licensee, the Parties agree that all Customer data and data related
thereto is owned by Licensee.
The provisions of this Article VII shall remain in force and effect after
the termination of this Agreement.
ARTICLE VIII
TERM AND TERMINATION
8.1 TERM. The term of this Master Technology License Agreement (the "Term")
shall be five (5) years unless terminated earlier in accordance with the
provisions of this Agreement. In the event of such early termination,
any Licensed Affiliate Agreement, including the provisions of this
Agreement incorporated therein, shall remain in effect as between the
Parties to such Licensed Affiliate Agreement.
8.2 TERMINATION FOR NON-PAYMENT. Provided that Licensor has not materially
breached any of the provisions of this Agreement, Licensee's failure to
pay any properly payable amounts due hereunder within sixty (60) written
days after receipt of written notice from Licensor that such amounts are
due and owing, shall be a material breach of this Agreement, and, at
Licensor's option, this Agreement and all licenses hereunder shall
terminate at any time after such sixty (60) day period.
8.3 TERMINATION FOR DEFAULT. In addition to any other rights or remedies
hereunder, either party may terminate this Agreement for any other
material breach by the other party of this Agreement or any provisions
hereof not cured within sixty (60) days after receipt of notice from the
non-defaulting party.
8.4 BUSINESS TERMINATION. In addition to any other rights or remedies
hereunder, either Party may terminate this Agreement immediately by
giving written notice to the other Party where the other Party: (i) makes
any general assignment for the benefit of creditors or otherwise enters
into any composition or arrangement with its creditors; (ii) is unable
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 28 -
to pay its debts as they mature; (iii) has a receiver and/or manager
appointed over its assets or an application is made to do so; (iv)
becomes bankrupt or insolvent or commits an act of bankruptcy or takes or
attempts to take advantage of any law or statute for the relief of
bankrupt or insolvent debtors; (v) commences or becomes subject to any
process that might result in its bankruptcy or liquidation; (vi) has a
resolution or a petition filed or an order made for its winding up; or
(vii) ceases to carry on business. Any such occurrence by Licensor shall
be a Release Condition as defined in the Source Code Escrow Agreement.
8.5 TERMINATION ON CEASING TO BE AN AFFILIATE. If Licensee ceases to be an
Affiliate of Citibank, then all rights granted pursuant to this Agreement
will continue only for a period of twelve (12) months with respect to
such Licensee. After such time, all rights granted pursuant to that
Licensed Affiliate Agreement shall automatically terminate, unless,
Licensor consents in writing to the assignment of the Licensed Affiliate
Agreement and the assignee assumes and agrees to be bound by all of the
provisions of this Agreement as set forth in Section 9.3. In the event
of an authorized assignment pursuant to this Section 8.5, the rights
granted pursuant to the Licensed Affiliate Agreement shall only be used
by the resulting entity in respect of the type of business and Customers
of the assignor immediately prior to the authorized assignment. If the
assignee wishes to utilize the Licensed Technology for a different type
of business or Customers, it must obtain its own license for the Licensed
Technology.
8.6 EFFECT OF TERMINATION.
(a) If Licensor terminates this Agreement pursuant to this Article
VIII, Licensee shall immediately commence procedures to remove
and cease to use of the Licensed Technology. Licensee shall
finally terminate all such use and shall return the Licensed
Technology and all copies thereof and documentation relating
thereto, to Licensor no later than 180 days from the date of
such termination. Notwithstanding, Licensor acknowledges that
in the event that it terminates this Agreement in accordance
with the provisions of this Article VIII, then it shall assist
Licensee to remove the Licensed Technology and Licensee's
related applications and shall, as is reasonable in the
circumstances, provide Licensee with a reasonable amount of
time to effect such removal and return. A senior officer of
Licensee shall provide Licensor with a signed certificate
within 10 days after the termination date attesting that all
software and materials have been returned to Licensor and that
Licensee has no such material in its possession or under its
control. For greater certainty, termination of this Agreement
in respect of one Licensee will not result in termination
against any other Licensee.
(b) If Licensee terminates this Agreement in accordance with this
Article VIII or Section 9.1, then Licensee shall be permitted to
continue to use the Licensed Technology for a period of nine (9)
months from the date of notice of such termination. All of the
rights and obligations of the parties under this Agreement shall
continue during such notice period. Licensee shall, during such
time, do
<PAGE>
- 29 -
such acts and things as are reasonably necessary to facilitate
the termination of use and removal of the Licensed Technology
within the nine (9) month period.
ARTICLE IX
GENERAL
9.1 EXCUSABLE DELAYS. Dates and times by which Licensor or Licensee is
required to render performance (other than dates and times for payment of
money) hereunder shall be postponed automatically to the extent and for
the period of time that Licensor or Licensee, as the case may be, is
prevented from meeting them by reason of any causes beyond its reasonable
control, provided the Party prevented from rendering performance notifies
the other Party immediately and in detail of the commencement and nature
of such a cause, and provided further that such Party uses its reasonable
efforts to render performance in a timely manner utilizing to such end
all resources reasonably required in the circumstances, including
obtaining supplies or services from other sources if same are reasonably
available. Notwithstanding the foregoing, if any event beyond the
reasonable control of Licensor delays the performance of Licensor for
more than thirty (30) consecutive days, Licensee will be entitled to
terminate this Agreement and the provisions of Section 8.6(b) shall
apply.
9.2 NOTICES. Any notice, consent, determination or other communication
(herein a "Notice") required or permitted to be given or made hereunder
shall be in writing and shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day
and left with the addressee at the address set forth below; or
(b) sent by any electronic means of sending messages, including
facsimile transmission, which produces a paper record ("Electronic
Transmission") during normal business hours on a Business Day,
charges prepaid and confirmed by prepaid first class mail:
TO LICENSOR, AT: WITH A COPY TO:
---------------- ---------------
1 Market, Steuart Tower 724 Solutions
San Francisco, California 4101 Yonge Street,
94105, USA Suite 702
Toronto, Ontario, Canada
Facsimile: (415) 615-0195 Facsimile: (416) 228-8199
Attention: Christopher Erickson, Attention: General Counsel
Director
<PAGE>
- 30 -
TO LICENSEE, AT: WITH A COPY TO:
---------------- ---------------
Citibank Citibank
909 Third Avenue 909 Third Avenue
New York, New York New York, New York
10043 10043
Attention: Alan Young Attention: e-Citi General
Counsel,
Facsimile: 212-793-3051 Facsimile: 212-559-4330
or to such other address or telecopier number to the attention of
such other individuals as any Party may from time to time notify
the others in accordance with this Section 9.2. Any Notice so
given or made shall be deemed to have been given or made on the
day of delivery if delivered as aforesaid (with a receipt or date
stamp) or on the Business Day immediately following the day of
Electronic Transmission.
9.3 ASSIGNMENT AND INUREMENT. Licensee may not assign any rights or benefits
under this Agreement to any Person without the prior written consent of
Licensor, provided that Licensee may assign this Agreement to the Person
that purchases or otherwise acquires all or substantially all of the
assets of Licensee so long as (i) such purchaser is not a Person whose
principal business is the commercial development, marketing or licensing
of commercial products that are competitive with the Licensed Technology,
(ii) Licensee does not retain any of the Licensed Technology, and (iii)
the purchaser agrees in writing with Licensor in advance of the
assignment to assume the obligations under this Agreement and to the
further restriction that the Licensed Technology will after the
assignment be used only in respect of the business acquired by the
purchaser from Licensee and that any further or additional use of the
Licensed Technology will require the payment of additional license fees.
If Licensee purchases or otherwise acquires all or substantially all of
the assets of another Person, the Licensed Technology shall only be used
by the Licensee in respect of the type of business (and its Customers)
that was operated by Licensee immediately prior thereto, and such other
business unit, if it wishes to utilize the Licensed Technology for a
different type of business, must obtain its own license for the Licensed
Technology. Subject to the foregoing, this Agreement shall inure to the
benefit of and be binding upon the Parties and their respective
successors and permitted assigns.
9.4 REMEDIES CUMULATIVE. The rights and remedies of the Parties under this
Agreement are cumulative and in addition to and not in substitution for
any rights or remedies provided by law.
9.5 COUNTERPARTS. This Agreement may be executed and delivered in several
counterparts and by each of the Parties on the same or separate
counterparts, each of which when so executed and delivered shall be
deemed to be an original and such counterparts together shall constitute
one and the same instrument and shall be effective as of the date hereof.
<PAGE>
- 31 -
9.6 WAIVER OF RIGHTS. Any waiver of, or consent to depart from, the
requirements of any provision of this Agreement shall be effective only
if it is in writing and signed by the Party giving it, and only in the
specific instance and for the specific purpose for which it has been
given. No failure on the part of any Party to exercise, and no delay in
exercising, any right under this Agreement shall operate as a waiver of
such right. No single or partial exercise of any such right shall
preclude any other or further exercise of such right or the exercise of
any other right.
9.7 CURRENCY. Except as otherwise expressly provided in this Agreement, all
dollar amounts referred to in this Agreement are stated in the lawful
currency of the United States.
9.8 RELATIONSHIP OF PARTIES. This is an arms-length agreement between
separate legal entities and neither is the agent or employee of the other
for any purpose whatsoever. The Parties do not intend to create a
partnership or joint venture between themselves. Neither Party shall
have the right to bind the other to any agreement with a Person or to
incur any obligation or liability on behalf of the other Party.
9.9 DISPUTE RESOLUTION. The following procedure will be adhered to in all
disputes arising under this Agreement which the Parties cannot resolve
informally. The aggrieved Party shall notify the other Party in writing
of the nature of the dispute with as much detail as possible about the
deficient performance of the other Party. The project managers shall
meet (in person or by telephone) within seven (7) days after the date of
the written notification to reach an agreement about the nature of the
deficiency and the corrective action to be taken by the respective
Parties. The project managers shall each produce a report about the
nature of the dispute in detail to their respective management. If the
project managers are unable to agree on corrective action, senior
managers of the Parties having authority to resolve the dispute without
the further consent of any other person ("Management") shall meet or
otherwise act to facilitate an agreement within fourteen (14) days of the
date of the written notification. If Management cannot resolve the
dispute or agree upon a written plan of corrective action to do so within
seven (7) days after their initial meeting or other action, or if the
agreed-upon completion dates in the written plan of corrective action are
exceeded, either Party may request arbitration as provided for in this
Agreement. Except as otherwise specifically provided, neither Party
shall initiate arbitration or other legal action against the other Party
unless and until this dispute resolution procedure has been employed or
waived.
9.10 ARBITRATION. Provided that the Parties have first attempted to resolve
the dispute pursuant to Section 9.9, either Party may submit any dispute
between the Parties arising from or relating to this Agreement, including
any failure to agree on a matter requiring agreement, (but not any
dispute relating to the ownership of Intellectual Property Rights or the
improper disclosure or use of the 724 Technology), to arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). The arbitration will be before a single
arbitrator selected by the New York office of the AAA. The arbitration
shall be in the English language. The arbitration shall take place in
Toronto, or in such other city agreed to by Licensor and Licensee.
<PAGE>
- 32 -
9.11 ATTORNEYS FEES. If a legal action or arbitration proceeding is commenced
in connection with any dispute under this Agreement, the prevailing
party, as determined by the final decision of a court or arbitrators from
which no appeal can be taken, shall be entitled to attorneys' fees
actually incurred, costs and necessary disbursements incurred in
connection with such action or proceeding.
TO WITNESS their agreement, the Persons below have duly executed this Agreement
on the date first written above.
724 SOLUTIONS CORP. CITICORP STRATEGIC
TECHNOLOGY CORPORATION
By: /s/ C. ERICKSON By: /s/ GORDON D. TRECO
-------------------- ------------------------
Name: C. ERICKSON Name: GORDON D. TRECO
Title: President and Secretary Title: Vice President
<PAGE>
EXHIBIT A
CITIBANK FEE PAYMENTS
Chart
<TABLE>
<CAPTION>
Minimum
Worldwide
Annual
Licensor
Revenue to be
Worldwide Earned during
Number Worldwide the Previous Maximum Minimum
Users of Number of Year from Citibank Fee Citibank Fee
Licensed Licensed Licensed Payment Payment
Year Technology Affiliates Affiliates * (annualized) (annualized)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
2 [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------------
3 [****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------------
4 [****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------------
5 [****] [****] [****] [****] [****]
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*These numbers refer to all amounts earned by Licensor and its Affiliates
as determined by United States GAAP regardless of whether such earned
amounts constitute license fees, maintenance fees or otherwise and
whether or not collected. Furthermore, the Minimum Worldwide Annual
Licensor Revenue Earned from Licensed Affiliates amount is for purposes
of calculating any Citibank fee due, and not a guarantee or projection of
actual minimum revenues to be earned by Licensor.
1. Citibank shall pay to Licensor, during each of the first 5 years during
which this Master License Agreement remains in effect, fees in the
amounts calculated as set forth below.
2. The Citibank Fee Payment for Year 1 shall be [****]. The Citibank
Fee Payment for each of Years 2 through 5 shall be determined as follows:
(a) If at the beginning of the year:
(i) the Worldwide Number of Users of Licensed Technology is
greater than or equal to the number appearing in Column 1
(corresponding to the year in question) of the Chart set
forth above (the "Chart"); and
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 2 -
(ii) the Worldwide Number of Licensed Affiliates is greater
than or equal to the number appearing in Column 2
(corresponding to the year in question)of the Chart; and
(iii) the Worldwide Annual Licensor Revenue Earned from
Licensed Affiliates during the previous year by Licensor
is greater than or equal to the number appearing in
Column 3 (corresponding to the year in question) of the
Chart
then the Citibank Fee Payment for that year shall be the number
appearing in Column 4 (corresponding to the year in question) of
the Chart.
(b) If at the beginning of the year:
(i) the Worldwide Number of Users of Licensed Technology is
greater than or equal to the number appearing in Column 1
(corresponding to the year in question) of the Chart; and
(ii) the Worldwide Number of Licensed Affiliates is greater
than or equal to the number appearing in Column 2
(corresponding to the year in question) of the Chart; and
(iii) the Worldwide Annual Licensor Revenue Earned from
Licensed Affiliates during the previous year is less than
the number appearing in Column 3 (corresponding to the
year in question) of the Chart
then the Citibank Fee Payment for that year shall be the number
appearing in Column 4 (corresponding to the year in question) of
the Chart reduced by one half (1/2) of the amount by which the
number appearing in Column 3 (corresponding to the year in
question) of the Chart exceeds the amount of Worldwide Annual
Licensor Revenue Earned during the previous year.
(c) In any other combination of events, the Citibank Fee Payment for
that year shall be the number appearing in Column 5 (corresponding
to the year in question) of the Chart.
3. PAYMENT TERMS FOR CITIBANK FEE PAYMENTS.
(a) Year 1 begins, upon execution of this Master License Agreement, on
the date first written above. Commencing thereon, payment for Year 1
shall be made in quarterly installments of [****]. At the end of each
quarter of Year 1, Licensor shall provide Citibank with (I) copies of
each of the Licensed Affiliate Agreements entered into during such
quarter; and (II) an accounting of the total amount of revenue, whether
license fees, maintenance fees or otherwise, that Licensor has earned
from ALL Licensed Affiliates. No later than thirty (30) days after the
end of Year 1, Licensor shall refund to Citibank the amount (up to a
maximum of [****]), if any, by which the total amount of revenue,
whether license fees, maintenance fees or otherwise, that Licensor has
earned from ALL Licensed Affiliates during Year 1 exceeds [****],
plus interest thereon at LIBOR for the last day of Year 1.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 3 -
(b) Commencing with Year 2, at the end of each quarter of years 2-5 (but
on the second to the last day of the quarter with respect to each year's
fourth quarter), Licensor shall provide Citibank with (I) copies of each
of the Licensed Affiliate Agreements entered into during such quarter;
and (II) an accounting of the total amount of revenue, whether license
fees, maintenance fees or otherwise, that Licensor has earned from ALL
Licensed Affiliates. No later than the last day of each of years 2-5,
Citibank shall pay to Licensor the amount, if any, by which the Worldwide
Annual Licensor Revenue Earned during such year is less than the annual
Citibank Fee Payment as calculated pursuant to Section 2 above.
(c) Computation of Number of Users. In computing the number of Users for
the purposes of Citibank Fee Payments, a Customer shall have had access
to the Licensed Technology and have utilized the Licensed Technology
through a Licensed Channel at least two times in a particular calendar
month in order to be considered to be a User. Furthermore, a Customer of
a Licensed Affiliate will be deemed to be one User regardless of the
numbers of services that the Customer receives through the Licensed
Technology located at the Licensed Affiliate's Designated Site.
<PAGE>
EXHIBIT B
FUNCTIONAL AND PERFORMANCE SPECIFICATIONS
OF THE SOFTWARE
The Licensed Technology consists of the 724 Solutions Financial Services
Platform (the "724 FSP"). This Exhibit states the functional and performance
specifications (the "Specifications") of the 724 FSP.
INTRODUCTION.
724 FSP is a software platform which enables financial institutions to
deliver their products and services (including banking, brokerage, [****],
financial services and e-commerce) packaged with other content (including
news, weather, horoscopes, sports, stock portfolio trackers) securely,
remotely and electronically in real time via any device connected to a
network (including the Internet, cable and satellite TV networks, cellular
networks, LANs, wired telephone networks).
724 FSP enables such capability by interfacing with financial institutions'
host and core processing systems through a middleware platform layer running
a common financial exchange protocol (including OFX, or the Integrion GOLD
messaging standard) as well as interfacing with certain content providers
using an agreed protocol (including XML).
724 FSP stores a "persona" for each of the financial institutions' customers
(which for the purposes of this Exhibit shall be referred to as the "User")
which contains their preferences. The information gathered by 724 FSP on
behalf of the User from the financial institution and the content providers
is then packaged and delivered to the device the User is using at that
particular time via the network to which the User is connected. 724 FSP
packages the information, formats it in a manner that best fits the device
being used by the User (including screen format, menu layering, font size and
device core functionality) and which can be transmitted to the User's device
via the network to which the device is connected (using an appropriate API
and protocol for transmission).
724 FSP enables the User to request certain information or initiate certain
transactions from/with the financial institution or content provider,
converting between formats, protocols and APIs in the process as described
above.
724 FSP can "push" information (including Content) to Users based upon User
configurable criteria (including stock alerts, and [****]), "pull"
information on demand (including balance of account, stock portfolio balance
and transaction journal) or execute transactions and receive confirmation (if
the financial institution sends such confirmation).
The 724 FSP is designed upon the architecture shown in Figure 1 and consists
of the components described below:
Channels: Customers can use to access the rest of the 724 FSP.
Core Services: Licensor services that operate the 724 FSP.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 2 -
Content Services: Licensor services that manage the retrieval and delivery
of information between the content provider and the Customer.
Content Providers: Third parties that provide the information and
transactional services.
Network Communications: Communications languages and protocols supported by
the 724 FSP.
Security: Policies, controls, procedures and mechanisms for protecting the
privacy and information assets of all Users and content providers with
respect to the 724 FSP.
CHANNELS.
Channels currently include: digitally enabled wireless telephones using a
phone.com browser, pc channel, html channel and PalmPilot connected
organizers versions 3.02 OS and higher excluding Palm VII.devices.
Additional channels in the future may include [****].
CORE SERVICES.
The Core Services provide the ability to create a 724 FSP logon and to manage
a User profile. The Core Services include the following:
1. 724 FSP AppCenter. The 724 FSP AppCenter provides the Inprise AppCenter
for managing distributed applications.
2. Administration Service. The Administration Service provides the
capability to manage and store the configuration settings for the 724
FSP.
3. Authentication Service. The Authentication Service provides the
capability to manage user identifications and passwords for the 724 FSP.
The Authentication Service will ensure that all 724 FSP passwords comply
with criteria defined by Licensee or Citibank.
4. Channel Service. The Channel Service manages the User's request.
5. Profile Service. The Profile Service manages User profiles for
preferences including watchlists and other third party content.
6. Protocol Gateway Service. The Protocol Gateway Service batches and
routes customer requests and compiles a detailed log entry for each
request.
7. Session Service. The Session Service provides network persistence,
which allows the selected state to be maintained, based upon specific
transactions or for a specific time duration.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 3 -
CONTENT SERVICES
Content Services enable the 724 FSP to deliver information from types of Content
Providers to Users. The Content Services include the following:
1. [****]
2. [****]
3. [****]
4. [****]
5. [****]
6. [****]
7. [****]
8. [****]
FINANCIAL INSTITUTION FUNCTIONALITY.
The 724 FSP provides the interfaces and transport means required to deliver
information from financial institutions to the Client Devices. The
functionality includes the following 724 Modules:
1. Banking. Banking shall include at minimum the following services.
Accounts - allows the User to create a banking relationship on the 724
FSP, designate a banking relationship as their main relationship,
[****].
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 4 -
2. Brokerage. Brokerage shall include at minimum the following services.
[****].
CONTENT FUNCTIONALITY.
The 724 FSP provides the interfaces and transport required to deliver
information from Content Providers to the Client Devices. The functionality
includes the following:
1. Notification and Lifestyle Services. Notification and Lifestyle
Services may include but are not limited to the following:
2. [****]
3. [****]
4. [****]
5. [****]
6. [****]
7. [****]
8. [****]
9. [****]
All Lifestyle Services and information from public stock exchanges shall be
procured solely by Licensee or its Affiliates.
FINANCIAL INSTITUTION AND CONTENT PROVIDER INTERFACES.
1. Interface to Banking and Brokerage Providers. The 724 FSP provides an
interface to Banking, Brokerage, Insurance Financial Services and
E-commerce providers based upon open industry standards. In addition
to other industry standard interfaces, the 724 FSP shall support an
OFX interface to Banking and Brokerage Content Providers. This
interface shall support [****] with the following provisions: i) the
724 FSP OFX interface does not require crash recovery facilities,
transaction management, or data synchronization of multiple clients.
ii) the 724 FSP OFX interface includes several OFX extensions defined
by Licensor. These extensions begin with the [****] prefix. A
complete
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 5 -
list of the OFX messages supported by the 724 FSP OFX interface
is included in Tables 1.1, 1.2, and 1.3.
2. Interface to Notification Service and Lifestyle Content Providers. The
724 FSP supports interfaces to Notification and Lifestyle Content
Providers based upon open industry standards.
3. Interface to Client Devices. The 724 FSP provides the interfaces
necessary to deliver the Content Provider Services to the Client
Devices.
SECURITY AND PRIVACY. In accordance with Sections 7.3 and 7.4, the 724 FSP
will use best efforts to comply with all of the policies, controls and
procedures defined by Citibank's or its Affiliates' Corporate Information
Security Organization and other divisions, from time to time, for protecting
the privacy and information assets of Users.
724 FSP DEPLOYMENT.
System Requirements. The 724 FSP can be deployed using the System
Requirements specified by Licensor from time to time. The System
Requirements shall state the number of simultaneous User sessions that can be
supported by the 724 FSP Platform with a particular configuration.
PERFORMANCE SPECIFICATIONS.
The 724 FSP shall be capable of [****].
The 724 FSP shall process data [****].
The 724 FSP shall be readily scaleable to support more Users [****].
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 1 -
TABLE 1.1 OFX MESSAGE INTERFACE - BANKING & BROKERAGE
(MANDATORY MESSAGES)
[****]
TABLE 1.2 OFX MESSAGE INTERFACE - BANKING
[****]
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 2 -
TABLE 1.3 OFX MESSAGE INTERFACE - BROKERAGE
[****]
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT C
RESOURCE COMMITMENTS OF LICENSOR
Licensor and/or 724 Solutions will commit the following resources for the
purpose of assisting the evaluation and implementation of the Licensed
Technology by Citibank and its Affiliates:
(a) Client Executive: A minimum of one fulltime resource will be
assigned to Citibank with the responsibility to introduce the 724
Technology to each Affiliates of Citibank interested in licensing
the 724 Technology and/or is referred to Licensor by Citibank
officers and employees. The Client Executive will have access to
resources from Licensor and its Affiliates that are necessary in
order for the Affiliate to evaluate the technology and understand
how the technology will be implemented and add value to their
specific operation. The Client Executive will commit to providing
information and/or presentations to support the evaluation
process in a timely manner. In addition the Client Executive
will be responsible for finalizing the Affiliate Agreement and
thereafter managing the relationship between the Affiliate and
Licensor and its Affiliates to ensure that the terms of the
Affiliate Agreement are met.
(b) Program Director: A minimum of one fulltime resource will be
assigned to Citibank with the responsibility to coordinate and
manage implementation projects throughout Citibank in a manner
that leverages the best practices that have been developed from
one implementation to the next. The Program Director will have
access to resources of Licensor and its Affiliates and partners
necessary to implement the 724 Technology as quickly and
effectively as possible.
(c) VP Customer Services: The Customer Service organization will be
staffed to provide necessary support to the Affiliates of
Citibank with respect to hours of operation and geographic points
of presence.
(d) EVP Field Operations: On a mutually agreed upon schedule or as
required basis, the Field Operations EVP and the appropriate
executives from eCiti will review progress being made with
respect to number of Affiliates that are implementing the
Technology as well as the volume of customers using the
Technology in each Affiliate and throughout the total
organization. Areas of improvement will be identified and action
steps executed to ensure continuous improvement in both the
numbers of Affiliates and the total volume of Users.
<PAGE>
EXHIBIT C-1
CITIBANK CONSULTING SERVICES AND PAYMENTS BY LICENSOR
1. CONSULTING SERVICES TO BE PROVIDED BY CITIBANK. From the date of
execution of this Agreement and for one (1) year thereafter, Citibank
will provide certain consulting services ("Citi Consulting Services") to
Licensor and its Affiliates including, but not limited to, the
following:
(a) the promotion of the Licensed Technology as the standard wireless
financial services platform for all Affiliates of Citibank;
(b) assistance in the ongoing work between Licensee and its
Affiliates technical personnel and the Citibank Affiliates
information technology function for the purpose of facilitating
adoption and implementation of the Licensed Technology by
Affiliates of Citibank;
(c) advisory services relating to third party technology providers,
Content providers, device manufacturers and other similar
services in connection with the implementation of the Licensed
Technology by Affiliates of Citibank; and
(d) advisory services in connection with the negotiation and
execution of Licensed Affiliate Agreements.
In no event shall Citibank Consulting Services include the development or
conveyance to Licensor of any Intellectual Property Rights.
2. RESOURCES TO BE PROVIDED BY CITIBANK. Citibank will provide the
following resources (Citi Consulting Resources") in order to carry out
the Citi Consulting Services:
(a) As requested by Licensor and/or its Affiliates, subject to a
maximum of two days per week, the e-Citi Vice President, Access
Devices and Distribution Technologies.
(b) Vice President level project management resources as requested by
Licensor and/or its Affiliates, subject to a maximum of 40 man
hours per week.
(c) Director level technical resources as requested by Licensor
and/or its Affiliates, subject to a maximum of 40 man hours per
week.
3. PAYMENT OF FEES FOR CITI CONSULTING SERVICES. Licensor will pay to
Citibank an aggregate of $[****], payable $[****] quarterly in
arrears, plus $[****] for each Licensed Affiliate Agreement executed
during the first year of the Master Technology License Agreement (the
Citi Consulting Fee") in consideration for the Citi Consulting Services
to be provided hereunder. Citibank shall be required to provide
quarterly report statements to Licensor setting out the resources
allocated and projects undertaken during the quarter. In the event that
Citibank has not provided the Citi Consulting Services and Citi
Consulting Resources in
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 2 -
accordance with Sections 1 and 2 of this Exhibit C-1, then Citibank's
sole liability shall be to, and Citibank shall, within 30 days of
the end of such quarter, repay to Licensor the Citi Consulting Fee in
respect of such quarter. Such repayment shall be Licensor's sole remedy
for failure by Citibank to provide the Citi Consulting Services and Citi
Consulting Resources, and such failure shall not constitute a breach of
this Master Technology License Agreement by Citibank.
<PAGE>
EXHIBIT D
FORM OF SOURCE CODE ESCROW AGREEMENT
Account Number ______________________
This Agreement is effective __________________, 1999 among DSI Technology Escrow
Services, Inc. ("DSI"), 724 Solutions Inc. ("Depositor") and Citibank
("Preferred Beneficiary"), who collectively may be referred to in this Agreement
as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement regarding certain proprietary technology (the "Licensed
Technology") of Depositor (referred to in this Agreement as the "License
Agreement").
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is important
to Preferred Beneficiary in the conduct of a portion of its business and,
therefore, Preferred Beneficiary needs access to the proprietary technology
under certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with
DSI to provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the License
Agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
ARTICLE 1 -- DEPOSITS
1.1 OBLIGATION TO MAKE DEPOSIT. Within thirty (30) days of the signing of
this Agreement by the parties, Depositor shall deliver to DSI the proprietary
technology and other materials ("Deposit Materials") identified on an Exhibit A.
If Exhibit A is applicable, it is to be prepared and signed by Depositor and
Preferred Beneficiary. DSI shall have no obligation with respect to the
preparation, signing or delivery of Exhibit A.
1.2 IDENTIFICATION OF TANGIBLE MEDIA. Prior to the delivery of the Deposit
Materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the Deposit
Materials are written or stored. Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed
by
<PAGE>
- 2 -
Depositor and delivered to DSI with the Deposit Materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2 below.
1.3 DEPOSIT INSPECTION. When DSI receives the Deposit Materials and the
Exhibit B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the Deposit Materials to the item
descriptions and quantity listed on the Exhibit B. In addition to the deposit
inspection, Preferred Beneficiary may elect to cause a verification of the
Deposit Materials in accordance with Section 1.6 below.
1.4 ACCEPTANCE OF DEPOSIT. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and mail a copy
thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted; and (c) mail a copy of the Exhibit B to
Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Beneficiary is Preferred Beneficiary's notice that the Deposit
Materials have been received and accepted by DSI.
1.5 DEPOSITOR'S REPRESENTATIONS. Depositor represents as follows:
a. Depositor lawfully possesses or has sufficient rights in all of
the Deposit Materials deposited with DSI;
b. With respect to all of the Deposit Materials, Depositor has the
right and authority to grant to DSI and Preferred Beneficiary the
rights as provided in this Agreement or in the License Agreement;
c. The Deposit Materials consist of the proprietary technology and
other materials identified either in the License Agreement or
Exhibit A, as the case may be; and
d. The Deposit Materials are readable and useable in their current
form or, if the Deposit Materials are encrypted, the decryption
tools and decryption keys have also been deposited.
1.6 VERIFICATION. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause DSI to perform a verification of any Deposit
Materials to verify that the Deposit Materials are executable on the appropriate
computer and are capable of compiling the object code of the Licensed
Technology. Only DSI may perform the verification and such verification shall
take place either at DSI's site or Depositor's site, and not a Preferred
Beneficiary's site. Only staff of DSI (and if requested by DSI, staff of
Depositor) shall be in attendance for any such verification. DSI shall provide
Preferred Beneficiary with a certificate attesting to the results of the
verification process. The verification right in this Section 1.6 may be
exercised only once in respect of each version of the Deposit Materials.
<PAGE>
- 3 -
1.7 DEPOSIT UPDATES. Unless otherwise provided by the License Agreement,
Depositor shall update the Deposit Materials within 60 days of delivery to
Preferred Beneficiary of a new Upgrade of the Licensed Technology under the
License Agreement. Such updates will be added to the existing deposit. All
deposit updates shall be listed on a new Exhibit B and the new Exhibit B shall
be signed by Depositor. Each Exhibit B will be held and maintained separately
within the escrow account. An independent record will be created which will
document the activity for each Exhibit B. The processing of all deposit updates
shall be in accordance with Sections 1.2 through 1.6 above. All references in
this Agreement to the Deposit Materials shall include the initial Deposit
Materials and any updates.
1.8 REMOVAL OF DEPOSIT MATERIALS. The Deposit Materials may be removed
and/or exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 CONFIDENTIALITY. DSI shall maintain the Deposit Materials in a secure,
environmentally safe, locked facility which is accessible only to authorized
representatives of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the Deposit Materials. Except as provided in this Agreement,
DSI shall not disclose, transfer, make available, or use the Deposit Materials.
DSI shall not disclose the content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the Deposit Materials, DSI will
immediately notify the parties to this Agreement. It shall be the
responsibility of Depositor and/or Preferred Beneficiary to challenge any such
order; provided, however, that DSI does not waive its rights to present its
position with respect to any such order. DSI will not be required to disobey
any court or other judicial tribunal order. (See Section 7.5 below for notices
of requested orders.)
2.2 STATUS REPORTS. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 AUDIT RIGHTS. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice. For greater certainty,
the audit rights in this Section 2.3 do not permit Preferred Beneficiary to have
access to the Deposit Materials.
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 RIGHT TO MAKE COPIES. DSI shall have the right to make copies of the
Deposit Materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the Deposit Materials onto any copies made
<PAGE>
- 4 -
by DSI. With all Deposit Materials submitted to DSI, Depositor shall provide
any and all instructions as may be necessary to duplicate the Deposit
Materials including but not limited to the hardware and/or software needed.
3.2 RIGHT TO TRANSFER UPON RELEASE. Depositor hereby grants to DSI the right
to transfer the Deposit Materials to Preferred Beneficiary upon any release of
the Deposit Materials for use by Preferred Beneficiary in accordance with
Section 4.5. Except upon such a release or as otherwise provided in this
Agreement, DSI shall not transfer the Deposit Materials.
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 RELEASE CONDITION. As used in this Agreement, "Release Condition" shall
mean any of the following:
a. Depositor ceases to carry on its business due to its winding up,
bankruptcy or liquidation; or
b. Depositor is in material breach of its obligations to provide the
services set out in paragraph (i) under "Performance Levels" in
Exhibit "F" of the License Agreement in respect of a Level 1
problem and such breach is not remedied within 30 days after
written notice of the breach is given to Depositor by Preferred
Beneficiary; or
c. Depositor is in material breach of any of its obligations set out
in the License Agreement where such breach is explicitly
identified as a Release Condition and such breach is not remedied
within 30 days after written notice of the breach is given to
Depositor by Preferred Beneficiary.
4.2 FILING FOR RELEASE. If Preferred Beneficiary believes in good faith that
the Release Condition has occurred, Preferred Beneficiary may provide to DSI
written notice of the occurrence of the Release Condition and a request for the
release of the Deposit Materials. Upon receipt of such notice, DSI shall
provide a copy of the notice to Depositor by the means required under Section
8.2.
4.3 CONTRARY INSTRUCTIONS. Depositor shall have fifteen (15) business days
from the date of receipt of the notice referred to in Section 4.2 to deliver to
DSI Contrary Instructions. "Contrary Instructions" shall mean the written
representation by Depositor that the Release Condition has not occurred or has
been cured. Upon receipt of Contrary Instructions, DSI shall send a copy to
Preferred Beneficiary by the means required under Section 8.2. Additionally,
DSI shall notify both Depositor and Preferred Beneficiary that there is a
dispute to be resolved pursuant to the Dispute Resolution section (Section 7.3)
of this Agreement. Subject to Section 5.2, DSI will continue to store the
Deposit Materials without release pending (a) joint instructions from Depositor
and Preferred Beneficiary; (b) resolution pursuant to the Dispute Resolution
provisions; or (c) order of a court.
<PAGE>
- 5 -
4.4 RELEASE OF DEPOSIT. If DSI does not receive Contrary Instructions from
the Depositor within the time period specified in Section 4.3, DSI is authorized
to release the Deposit Materials to the Preferred Beneficiary or, if more than
one beneficiary is registered to the deposit, to release a copy of the Deposit
Materials to the Preferred Beneficiary. However, DSI is entitled to receive any
fees due DSI before making the release. Any copying expense in excess of $300
will be chargeable to Preferred Beneficiary. DSI's obligations to maintain the
Deposit Materials will terminate upon the release of the Deposit Materials held
by DSI.
4.5 RIGHT TO USE FOLLOWING RELEASE. Upon release of the Deposit Materials in
accordance with this Article 4:
a. Preferred Beneficiary shall have and Depositor hereby grants to
Preferred Beneficiary a non-exclusive, non-transferable license
for Preferred Beneficiary to use the Deposit Materials solely at
the Designated Site and only for the purposes of supporting the
use by Preferred Beneficiary and its Authorized Affiliates of the
Licensed Technology in accordance with the License Agreement and
this Section 4.5. Any modifications to the Licensed Technology
developed by the Preferred Beneficiary ("Modifications") as part
of correcting errors in the Licensed Technology which are compiled
into binary form by the Preferred Beneficiary or otherwise used in
a production environment shall be deemed for all purposes to be
part of the Licensed Technology and shall be used and treated as
such by Preferred Beneficiary strictly in accordance with the
License Agreement. Depositor shall not be responsible for any
Modifications, or the compatibility of any Licensed Technology,
equipment or service with such Modifications, or for support or
maintenance of the Modifications, or for errors caused to the base
Licensed Technology caused by the Modifications. Preferred
Beneficiary acknowledges that the Deposit Materials constitute
confidential, trade secret and very valuable information of
Depositor, which information Preferred Beneficiary agrees not to
access, use or copy other than in accordance with the terms of
this Article 4.5 and the License Agreement.
b. Preferred Beneficiary agrees that the Deposit Materials and the
Modifications shall be deemed to be Confidential Information of
Depositor and treated as and included as part of the Licensed
Technology, and Preferred Beneficiary's obligations and
Depositor's rights with respect to Confidential Information and
the Licensed Technology under the License Agreement shall apply in
all respects to the Deposit Materials and the Modifications except
as otherwise expressly set out in this Article 4.5.
c. Preferred Beneficiary shall:
i. use its utmost care to ensure that the persons
authorized hereunder to have access to the Deposit
Materials keep the Deposit Materials secret and
confidential;
<PAGE>
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ii. not release or make any use of the Deposit Materials
available to any person other than to employees and
authorized contractors of Preferred Beneficiary working
at the Designated Site with a need for access to enable
Preferred Beneficiary to exercise its rights under this
Article 4.5;
iii. instruct all such employees and authorized contractors of
Preferred Beneficiary to keep the Deposit Materials
confidential and have all such persons execute the form
of proprietary rights protection agreement attached
hereto as Exhibit D at the time such person is given
access to the Deposit Materials;
iv. not copy the Deposit Materials other than as reasonably
required for the purposes set out in Section 4.5(a);
v. inform and provide Depositor with copies of, and all
documentation for, all Modifications at the time such
Modification is put into production by Preferred
Beneficiary;
vi. not provide any Competitor of 724 Solutions with access
to the Deposit Materials;
vii. not use the Deposit Materials to expand the scope of use
of the Licensed Technology beyond the Licensed Modules
and Licensed Channels referred to in the License
Agreement; and
viii. not use the Deposit Materials to develop any
modifications, enhancements or additions to the Licensed
Technology except such as are required to correct errors
in the Licensed Technology.
ARTICLE 5 -- TERM AND TERMINATION
5.1 TERM OF AGREEMENT. The initial term of this Agreement is for a period
of one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless (a) Depositor and Preferred Beneficiary jointly
instruct DSI in writing that the Agreement is terminated; or (b) the
Agreement is terminated by DSI for nonpayment in accordance with Section 5.2;
or (c) the Agreement is terminated pursuant to Section 5.3. If the Deposit
Materials are subject to another escrow agreement with DSI, DSI reserves the
right, after the initial one year term, to adjust the anniversary date of
this Agreement to match the then prevailing anniversary date of such other
escrow arrangements.
5.2 TERMINATION FOR NONPAYMENT. In the event of the nonpayment of fees owed
to DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Any party to this Agreement shall have the right to make the payment
to DSI to cure the default. If the past due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall have the right
to terminate this Agreement at any time thereafter by sending written notice
<PAGE>
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of termination to all parties. DSI shall have no obligation to take any
action under this Agreement so long as any payment due to DSI remains unpaid.
5.3 DISPOSITION OF DEPOSIT MATERIALS UPON TERMINATION. Upon termination of
this Agreement, DSI shall destroy, return, or otherwise deliver the Deposit
Materials in accordance with Depositor's instructions. If there are no
instructions, DSI may, at its sole discretion, destroy the Deposit Materials or
return them to Depositor. DSI shall have no obligation to return or destroy the
Deposit Materials if the Deposit Materials are subject to another escrow
agreement with DSI.
5.4 SURVIVAL OF TERMS FOLLOWING TERMINATION. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. The obligations of confidentiality with respect to the Deposit
Materials;
b. The rights granted in the sections entitled Right to Transfer Upon
Release (Section 3.2) and Right to Use Following Release (Section
4.5), if a release of the Deposit Materials has occurred prior to
termination;
c. The obligation to pay DSI any fees and expenses due;
d. The provisions of Article 7; and
e. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
ARTICLE 6 -- DSI'S FEES
6.1 FEE SCHEDULE. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. Preferred Beneficiary is obligated to pay
all such fees and expenses associated with this Agreement. DSI shall notify the
Preferred Beneficiary at least 90 days prior to any increase in fees. For any
service not listed on DSI's standard fee schedule, DSI will provide a quote
prior to rendering the service, if requested.
6.2 PAYMENT TERMS. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI are paid
in full by Preferred Beneficiary. Fees are due upon receipt of a signed
contract or receipt of the Deposit Materials whichever is earliest. If
invoiced fees are not paid, DSI may terminate this Agreement in accordance
with Section 5.2. Late fees on past due amounts shall accrue interest at the
rate of one and one-half percent per month (18% per annum) from the date of the
invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 RIGHT TO RELY ON INSTRUCTIONS. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine,
and received from the parties' designated contacts set out in Exhibit C, or if
the designated contact is no longer employed by the party in
<PAGE>
- 8 -
that capacity, a representative of the party of the same or greater title or
authority. DSI may assume that any written notice, request, or instruction
received from the respective designated contact is authorized by the party
sending it. DSI shall not be responsible for failure to act as a result of
causes beyond the reasonable control of DSI.
7.2 INDEMNIFICATION. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with
regard to this escrow arrangement. Provided DSI has acted in the manner
stated in the preceding sentence, Depositor and Preferred Beneficiary each
agree to indemnify, defend and hold harmless DSI from any and all claims,
actions, damages, arbitration fees and expenses, costs, attorney's fees and
other liabilities incurred by DSI relating in any way to this escrow
arrangement.
7.3 DISPUTE RESOLUTION. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by Depositor and
Preferred Beneficiary, arbitration will take place in New York, NY. Any
court having jurisdiction over the matter may enter judgment on the award of
the arbitrator(s).
7.4 CONTROLLING LAW. This Agreement is to be governed and construed in
accordance with the laws of the State of New York, without regard to its
conflict of law provisions.
7.5 NOTICE OF REQUESTED ORDER. If any party intends to obtain an order
from the arbitrator or any court of competent jurisdiction which may direct
DSI to take, or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full by the Preferred Beneficiary for
any past due fees and be paid for the reasonable value of the
services to be rendered pursuant to such order; and
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if DSI may need to
retain the original in its possession to fulfill any of its other
duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 ENTIRE AGREEMENT. This Agreement, which includes the Exhibits
described herein, embodies the entire understanding among the parties with
respect to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. DSI is not a party
to the License Agreement between Depositor and Preferred Beneficiary and has
no knowledge of any of the terms or provisions of any such License Agreement.
DSI's only obligations to Depositor or Preferred Beneficiary are as set
forth in this Agreement. No amendment or modification of this Agreement shall
be valid or binding unless signed by all the parties hereto, except that
Exhibit A need not be signed by DSI, Exhibit B need not be signed by
Preferred Beneficiary and Exhibit C need not be signed.
<PAGE>
- 9 -
8.2 NOTICES. All notices, invoices, payments, deposits and other
documents and communications shall be given to the parties at the addresses
specified in the attached Exhibit C. It shall be the responsibility of the
parties to notify each other as provided in this Section in the event of a
change of address. The parties shall have the right to rely on the last known
address of the other parties. Unless otherwise provided in this Agreement,
all notices under Article 4 or related to Section 7.3 shall be delivered by
overnight courier delivery by a nationally recognized courier company
(currently including Federal Express and UPS).
8.3 SEVERABILITY. In the event any provision of this Agreement is found
to be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity
of this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable
provision most closely reflecting the intent and purpose of the original
provision.
8.4 NON-ASSIGNMENT. DSI shall not be entitled to assign this Agreement
without the prior written consent of Depositor and Preferred Beneficiary.
Preferred Beneficiary may not assign this Agreement without the prior written
consent of Depositor and DSI, provided that Preferred Beneficiary, without
such consent, may assign this Agreement to an entity to whom Preferred
Beneficiary is permitted to assign its rights under the License Agreement in
accordance with the terms of the License Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the successors and permitted
assigns of the parties. However, DSI shall have no obligation in performing
this Agreement to recognize any successor or assign of Depositor or Preferred
Beneficiary unless DSI receives clear, authoritative and conclusive written
evidence of the change of parties.
8.5 DEFINITIONS. Capitalized terms not otherwise defined herein shall be
given the meaning ascribed to them in the License Agreement.
8.6 REGULATIONS. Depositor and Preferred Beneficiary are responsible for
and warrant compliance with all applicable laws, rules and regulations,
including but not limited to customs laws, import, export, and re-export laws
and government regulations of any country from or to which the Deposit
Materials may be delivered in accordance with the provisions of this
Agreement.
724 Solutions Inc.
Depositor Preferred Beneficiary
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
Date:__________________________ Date:__________________________
<PAGE>
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DSI Technology Escrow Services, Inc.
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
Date:___________________________________________
<PAGE>
- 11 -
EXHIBIT A
TO THE FORM OF SOURCE CODE ESCROW AGREEMENT
MATERIALS TO BE DEPOSITED
Account Number ______________________
Depositor represents to Preferred Beneficiary that Deposit Materials
delivered to DSI shall consist of the following:
[describe Source Code; exclusive of source code for Third Party Materials; list
tools, development environment, custom libraries, dll's etc.]
724 Solutions Inc.
Depositor Preferred Beneficiary
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
Date:__________________________ Date:__________________________
<PAGE>
- 12 -
EXHIBIT B
TO THE FORM OF SOURCE CODE ESCROW AGREEMENT
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name________________________________________________________
Account Number________________________________________________________________
Product Name____________________________________Version_______________________
(PRODUCT NAME WILL APPEAR ON ACCOUNT HISTORY REPORT)
DEPOSIT MATERIAL DESCRIPTION:
<TABLE>
<CAPTION>
Quantity Media Type & Size Label Description of Each Separate Item
(PLEASE USE OTHER SIDE IF ADDITIONAL SPACE IS NEEDED)
<S> <C> <C>
________ Disk 3.5" or ____
________ DAT tape ____mm
________ CD-ROM
________ Data cartridge tape ____
________ TK 70 or ____ tape
________ Magnetic tape ____
________ Documentation
________ Other ____________________
</TABLE>
PRODUCT DESCRIPTION:
Operating System______________________________________________________________
Hardware Platform_____________________________________________________________
DEPOSIT COPYING INFORMATION:
Is the media encrypted? Yes / No If yes, please include any passwords and the
decryption tools.
Encryption tool name___________________________________ Version_______________
Hardware required_____________________________________________________________
Software required_____________________________________________________________
I certify for DEPOSITOR that the DSI has inspected and accepted the above
above described Deposit Materials materials (ANY EXCEPTIONS ARE NOTED
have been transmitted to DSI: ABOVE):
Signature________________________ Signature________________________
Print Name_______________________ Print Name_______________________
Date_____________________________ Date Accepted____________________
Exhibit B#_______________________
Send materials to: DSI, 9265 Sky Park Court, #202, San Diego, CA 92123
(858) 499-1600
<PAGE>
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EXHIBIT C
TO THE FORM OF SOURCE CODE ESCROW AGREEMENT
DESIGNATED CONTACT
Account Number ______________________
Notices, deposit material returns and
communications to Depositor
should be addressed to:
Company Name: _______________________
Address:_____________________________
_____________________________
_____________________________
Designated Contact:__________________
Telephone:___________________________
Facsimile:___________________________
Notices and communications to Invoices to Preferred Beneficiary
Preferred Beneficiary should be should be addressed to:
addressed to:
Company Name:________________________ ____________________________________
Address:_____________________________ ____________________________________
_____________________________ ____________________________________
_____________________________ ____________________________________
Designated Contact:__________________ Designated Contact:_________________
Telephone:___________________________ ____________________________________
Facsimile:___________________________ P.O.#, IF REQUIRED:_________________
Notices from Depositor or Preferred Beneficiary to change its respective
designated contact must be given in writing to all the other parties by the
designated contact or an authorized employee of Depositor or Preferred
Beneficiary.
Contracts, Deposit Materials and Invoice inquiries and fee remittances
notices to to DSI should be addressed to:
DSI should be addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 202 Suite 1450
9265 Sky Park Court 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (858) 499-1600 (415) 398-7900
Facsimile: (858) 694-1919 (415) 398-7914
Date:________________________________
<PAGE>
EXHIBIT E
SOFTWARE MAINTENANCE AND SUPPORT SERVICES
("Maintenance Services")
Licensor (or the designated 724 Distribution Company) will provide the following
"Maintenance Services" in connection with the maintenance and support of the
most recent version the software within the Licensed Technology and the most
recent prior Major Release:
(a) UPDATES: Licensor shall provide Updates and Upgrades to the
Licensed Technology whenever Licensor and/or its Affiliates
provides them to its other customers generally or, with respect to
a Customization, to a Licensee.
(b) TELEPHONE SUPPORT: Licensor or an Affiliate (the "Support
Services Provider") will maintain a "Service Desk" to provide
Licensee with a single point of contact for all questions and
problems regarding the Licensed Technology, and the repair of any
errors in the Licensed Technology.
(c) LICENSEE REQUESTS TO REPAIR ERRORS: Support Services Provider
will review requests to repair errors in the Licensed Technology
at no charge to Licensee. If it is determined that such request
is a request for an improvement, then the request will be treated
as a request for Consulting Services. If however such request is a
request to fix an error, then Support Services Provider shall
repair such error in accordance with the terms of this Schedule at
no additional charge to Licensee.
(d) SINGLE POINT OF CONTACT: At Licensee's request, Support Services
Provider will assign (or will cause an Affiliate to assign) to
Licensee a product expert, on a billable basis in accordance with
the terms hereof, to provide a single point of contact for
Licensee for the purposes of technical support issues relating to
the Licensed Technology.
Licensor shall offer and make available to Licensee each production version
of the Licensed Technology and any customizations, modifications or
enhancements as it is released generally. Licensor reserves the right not to
support any version of the Licensed Technology that is older than the most
recent prior production version of the Licensed Technology or any
customizations, modifications or enhancements made by any Person other than
Support Services Provider (or its authorized agents or subcontractors)
provided that Licensor or its Affiliates will support each version of the
Licensed Technology for at least [****] after it is delivered to Licensee.
Notwithstanding the foregoing, Licensor and/or its Affiliate will continue to
satisfy its maintenance obligations hereunder whether or not Licensee chooses
to adopt any particular Non-Embedded Third Party Materials.
SERVICE DESK
(a) LOCATION: Support Services Provider will establish and maintain a
Service Desk at its offices (or as determined by Licensor from
time to time).
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
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(b) BASIC SERVICES: Support Services Provider will provide the
following basic Service Desk services:
(i) call and electronic mail answering and dispatch;
(ii) problem management including trouble ticketing and
call logging;
(iii) problem resolution; and
(iv) maintenance of website providing electronic support
via the Internet.
(c) SERVICE HOURS: The 724 Service Desk will be available to receive
calls from Licensee during normal business hours in any
jurisdiction receiving Licensed Technology, during Business Days
("Normal Service Hours"). Beeper support by a single 724
Solutions staff member will be available from 5:00 p.m. to 8:00
p.m. (Toronto Time) ("Extended Service Hours"), provided however
that response times shall be double that of response times during
Normal Service Hours. Normal Service Hours and Extended Service
Hours are referred to as "Service Hours".
(d) ON-SITE SUPPORT: Support Services Provider will provide on-site
support services for Licensee:
(i) for any Level 1 Priority failure (as defined below) in
the event that Support Services Provider cannot correct a
failure of the Licensed Technology by telephone or
electronically; and
(ii) if Licensee otherwise requests on-site support, Support
Services Provider, shall provide the support.
provided, however, that Licensee shall:
(iii) reimburse Support Services Provider for reasonable travel
expenses incurred by Support Services Provider and
approved by Licensee in advance on an actual cost basis,
including transportation, living and communications
costs, which fees and costs shall be paid by Licensee
within 45 days of receipt of an invoice accompanied by
supporting documentation including receipts from Support
Services Provider for such amounts in connection with
such on-site service and all applicable taxes, duties and
similar charges which are not recoverable by way of
credit, refund, rebate, offset or other reimbursement;
and
(iv) if it is determined that the problem was not caused
solely by failure of the Licensed Technology, reimburse
Support Services Provider for all labour costs, at
Support Services Provider's normal Consulting Services
rates.
<PAGE>
- 3 -
SERVICE DESK PROCEDURES AND CORRECTION OF ERRORS
(a) RESPONSE TIME FOR SERVICE DESK: For all Licensee calls reported
during Service Hours, a Customer Service Representative of Support
Services Provider shall determine if the question can be answered
or problem resolved immediately over the telephone; however, if
this is not possible, the Customer Service Representative will:
(i) assign the priority code (listed below under "Priority
Codes") to the call that Licensee requests; and
(ii) attend to each service call in the order of the priority
codes and date of receipt of the call.
(b) EMERGENCY PROCEDURES AFTER SERVICE HOURS: In the case of an
emergency after Service Hours, Licensee shall first attempt to
reach the Customer Service Representative of Support Services
Provider assigned to Licensee and failing this, Licensee may
contact the persons listed on Support Services Provider's then-
current emergency contact list. Support Services Provider will
deliver the emergency contact list to Licensee's contact person
promptly after the date of this Agreement and after making any
change to the list, but in no case less frequently than
semi-annually.
PRIORITY CODES
The level of service and order of priority shall be determined by the priority
codes assigned by Licensee. If 724 receives a telephone support call for a
lower priority service request, service for such item will be scheduled after
all higher priority service calls have been addressed.
For the purposes of this Section entitled "Priority Codes":
(a) "Core Services" means any material function of that part of the
Licensed Technology which does not reside on a client device
(including PC, wireless telephone, set top box, etc.), and which,
if such function became Unavailable (as defined below), would
cause all, or substantially all of the Secondary Services (as
defined below), to be Unavailable;
(b) "Secondary Services" means any material function of the Licensed
Technology that provides a Customer of Licensee with access to a
group of host services (including services like news, quotes,
weather, horoscopes, etc., and client device software such as PC,
wireless telephone, set top box, etc.) offered by Licensee to its
Customers.
(c) "Unavailable" means that all, or substantially all of, the
material functionality of either a Core Service or a Secondary
Service, as the case may be, is unavailable to Licensee and/or
Customers, or is so severely hampered that regular processing
cannot take place.
<PAGE>
- 4 -
The priority codes that may be assigned to a call are:
(i) LEVEL 1: An error, defect or problem that has caused either (i)
one or more Core Services to be Unavailable, (ii) two or more
Secondary Services to be Unavailable; or a security issue that
materially affects the integrity of any Core Services or Secondary
Services, or (iii) a material number of Customers are unable to
access information over a Licensed Channel.
(ii) LEVEL 2: An error, defect or problem has only caused a Secondary
Service to be Unavailable; or a security issue that does not
qualify as a Level 1 priority.
(iii) LEVEL 3: An error, defect or problem that does not qualify as
either a Level 1 or Level 2 priority.
PERFORMANCE LEVELS
Licensor agrees to respond to each service call as follows:
(i) LEVEL 1: Support Services Provider will assign an Incident
Manager and respond to Licensee within [****], and use its
commercially reasonable efforts, working diligently, to repair
the error, defect or problem within [****] from receipt of the
service call. If such error, defect or problem is not resolved
within [****] of receipt or is not likely to be resolved within
[****] of receipt, Support Services Provider's qualified staff
will work with Licensee personnel continuously, either at
Support Services Provider's location, or, at Licensee's
request, at any Licensee location. Reasonable travel,
accommodation and living expenses (having regard to the urgency
and short time frames) will be the responsibility of Licensee
if travel is requested by Licensee.
(ii) LEVEL 2: Support Services Provider will assign an Incident
Manager and respond to Licensee within [****], and use its
commercially reasonable efforts, working diligently during
Service Hours, to repair the error, defect or problem. At
Licensee's request, and subject to availability of Support
Services Provider's resources, Support Services Provider will
dispatch one or more resources to the location designated by
Licensee in order to resolve the matter. Reasonable travel,
accommodation and living expenses (having regard to the urgency
and short time frames) will be the responsibility of Licensee.
(iii) LEVEL 3: Support Services Provider will respond within [****]
and to the extent technically possible, repair same within
[****] days or, at the option of Support Services Provider, with
the next major release of the Licensed Technology, provided
that same does not turn into a Level 1 or Level 2 error.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
- 5 -
ESCALATION PROCEDURE
(a) SETTING PRIORITY CODES:
(i) As provided in paragraph (a)(i) of the Section entitled
"Service Desk Procedures and Correction of Errors",
[****] and Support Services Provider shall handle the
call on the basis of that priority code.
(ii) After the services are provided, [****] Support
Services Provider's Vice-President in charge of
Maintenance and Support Services may so inform
Licensee's contact person in writing, explaining, by
reference to the definition in the Section entitled
"Priority Code", why the facts of the call did not
correspond to the priority code Licensee assigned.
Support Services Provider may then invoice Licensee at
the time and materials rates (as set out in Schedule B
to the Licensed Affiliate Agreement) for Services
rendered in connection with such call.
Support Services Provider will responded promptly to all such requests
for escalations.
EXCLUSIONS
Maintenance Services will only be included with Consulting Services as set out
in the Statement of Services and as otherwise specified in Section 3.10 to this
Agreement.
[****] REPRESENTS MATERIAL WHICH HAS BEEN REDACTED AND SEPARATELY FILED WITH
THE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO
RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT F
LICENSED AFFILIATE AGREEMENT
THIS AGREEMENT is made the ________ day of ______________, 2000
B E T W E E N:
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
("DESIGNATED LICENSOR")
- AND -
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
("CITIBANK AFFILIATE")
BACKGROUND:
1. 724 Solutions Corp. (the "Licensor") has entered into a Master Technology
License Agreement including Exhibits thereto (the "Master Agreement")
with Citicorp Strategic Technology Corporation, ("Citibank") dated
December 29, 1999 pursuant to which Licensor has agreed to license or to
direct one of its Affiliates offer to license the Licensed Technology and
provide or arrange for the provision of other services to Citibank or
Affiliates of Citibank that execute a Licensed Affiliate Agreement; and
2. Citibank Affiliate is an Affiliate of Citibank which wishes to license
the Licensed Technology.
IN CONSIDERATION of the promises, the mutual covenants contained herein and
other good and valuable consideration, (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto agree as follows:
1. DEFINITIONS. In this Agreement, capitalized words not otherwise defined
herein shall be given the meaning ascribed to them in the Master Agreement.
2. STRUCTURE. This Licensed Affiliate Agreement (and the Schedules attached
hereto) is a separate agreement that exists between the Parties hereto, the
terms of which consist exclusively
<PAGE>
- 2 -
of the terms and conditions of the Master Agreement specified therein as are
applicable to Licensees (other than those specifically excluded below, those
additional or amending terms set forth below and the Schedules, if any,
attached hereto). All references in the Master Agreement to Schedules
attached to a Licensed Affiliate Agreement, if any, shall be interpreted as
references to the Schedules attached to this Licensed Affiliate Agreement.
In the event there is any inconsistency between the terms of this Licensed
Affiliate Agreement and the terms of the Master Agreement, the terms of this
Licensed Affiliate Agreement shall prevail to the extent of any such
inconsistency.
3. LICENSED TECHNOLOGY
(a) LICENSED MODULES
(b) DELIVERY DATE FOR LICENSED TECHNOLOGY
(c) DESIGNATED SITE
4. TERM
5. LICENSE FEES
6. MAINTENANCE FEES
7. ADDRESS FOR SERVICE. The address for service of each of the parties is
as follows:
___________________________
___________________________
___________________________
Facsimile:
Attention:
TO WITNESS their agreement, the Parties have duly executed this Agreement on the
date first written above.
[DESIGNATED LICENSOR] [CITIBANK AFFILIATE]
By:__________________________ By:___________________________
Name: Name:
Title: Title
<PAGE>
EXHIBIT 23.3
The Board of Directors
724 Solutions Inc.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Summary Consolidated Financial Information",
"Selected Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
January 12, 2000
