<PAGE>
FILE NO. 333-90143
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
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 1N6
(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>
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Shares(2)............................................ $151,800,000 $40,075.20(3)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) A portion of the common shares will be offered outside of the United States.
(3) A filing fee of $27,800 was paid on or about November 2, 1999.
----------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 25, 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 $20.00 and
$22.00 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>
<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
</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 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
this year. 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 net revenue was approximately $0.8 million during the nine months ended
September 30, 1999 and we incurred net losses during this period of
approximately $7.6 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 the date of this prospectus to purchase
2,993,530 common shares under our stock option plans at a weighted average
exercise price of $3.08 per share; and
- common shares issued upon the exercise of stock options after
September 30, 1999.
--------------
All references to "$" 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>
PERIOD FROM NINE MONTHS 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:
Software development from related
party.................................. $ -- $ 1,678 $ 1,049 $ 1,314
Services................................. -- 208 208 788
Less: Stock-based compensation related to
software development................... -- (1,395) (785) (1,273)
------ ------- ------- -------
Net revenue............................ -- 491 472 829
Total operating expenses................... 165 3,297 1,659 8,720
------ ------- ------- -------
Income (loss) from operations.............. (165) (2,806) (1,187) (7,891)
Interest income............................ 10 107 69 341
------ ------- ------- -------
Net income (loss).......................... $ (155) $(2,699) $(1,118) $(7,550)
====== ======= ======= =======
Basic and diluted net income (loss) per
share.................................... $(0.06) $ (0.47) $ (0.24) $ (0.57)
====== ======= ======= =======
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 $184,064
Working capital............................................. 25,716 66,806 181,736
Total assets................................................ 32,444 73,534 188,464
Total shareholders' equity.................................. 27,353 68,443 183,373
</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 $21.00 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,
$2.7 million for the year ended December 31, 1998 and $7.6 million for the nine
months ended September 30, 1999. As of September 30, 1999, we had an accumulated
deficit of $10.4 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
10
<PAGE>
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;
11
<PAGE>
- 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.
12
<PAGE>
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.
13
<PAGE>
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.
14
<PAGE>
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.
If at any time we qualify as a passive foreign investment company under
U.S. tax laws, your tax liability may increase. We could be a passive foreign
investment company if 75% of our gross income in any year is considered passive
income for U.S. tax purposes. Passive income generally includes interest,
dividends, some types of rents and royalties, and gains from the sale of assets
that produce these types of income. In addition, we could be classified as a
passive foreign investment company if the average percentage of our assets
during any year that produced passive income, or that is held to produce passive
income, is at least 50%. If we are classified as an entity of this kind, and if
you sell any of our common shares or receive some types of distributions from
us, you may have to pay taxes that are higher than if we were not considered a
passive foreign investment company. It is difficult to estimate
15
<PAGE>
how much your taxes would increase, if at all. We urge you to consult your own
tax advisor to discuss the potential consequences to you if at any time we
qualify as a passive foreign investment company.
To determine whether we are a passive foreign investment company, we will be
required to examine each year our revenue and expenses and the value of our
assets. The tests are complex and require, among other things, that we determine
how much of our income from our licensing agreements each year will be passive
income. We do not have the necessary data to determine whether these tests will
be met for the year 2000 or future years, nor can we predict whether the tests
are likely to be met. Moreover, the manner in which the tests apply to our
business is not certain. See "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.
16
<PAGE>
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.
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 more than 75%
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.
17
<PAGE>
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, the 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".
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.
18
<PAGE>
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. 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.
19
<PAGE>
USE OF PROCEEDS
We expect to receive about $114.9 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 $21.00 per common share. We estimate that the net proceeds
will be about $132.5 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. In particular, the types of any acquisitions or investments that we
may make will largely depend upon the business opportunities that we identify,
if any, which we cannot predict at this time. 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 January 21, 2000, the noon buying rate in New York City for cable
transfers in Canadian dollars was Cdn.$1.00 equals $0.6935. 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 $21.00
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 $184,064
======= ======= ========
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 78,997 193,927
Deferred stock-based compensation........................... (150) (150) (150)
Accumulated deficit......................................... (10,404) (10,404) (10,404)
------- ------- --------
Total capitalization........................................ $27,353 $68,443 $183,373
======= ======= ========
</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 the date of this prospectus to purchase
2,993,530 common shares under our stock option plans at a weighted average
exercise price of $3.08 per share; and
- common shares issued upon the exercise of stock options after
September 30, 1999.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999, was
$68.4 million or $2.33 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 $21.00 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
$183.3 million, or $5.18 per share. This represents an immediate increase in pro
forma net tangible book value of $2.85 per share to existing shareholders and an
immediate dilution in net tangible book value of $15.82 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........... $21.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... 2.33
Increase attributable to new investors.................. 2.85
------
Pro forma net tangible book value per share after this
offering.................................................. 5.18
------
Dilution per share to new investors......................... $15.82
======
</TABLE>
The following table sets forth, as of December 31, 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 $21.00 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 37.4% $2.56
New investors............................. 6,000,000 16.9 126,000 62.6% 21.00
---------- ------ -------- ------
Total..................................... 35,402,426 100.0% $201,255 100.0%
========== ====== ======== ======
</TABLE>
To the extent that any shares are issued upon the exercise of options or
warrants that were outstanding as of December 31, 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>
PERIOD FROM NINE MONTHS 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:
Software development from a related
party.................................. $ -- $ 1,678 $ 1,049 $ 1,314
Services................................. -- 208 208 788
Less: Stock-based compensation related to
software development................... -- (1,395) (785) (1,273)
------ ------- ------- -------
Net revenue............................ -- 491 472 829
Operating expenses:
Cost of services revenue................. -- 61 61 819
Research and development................. 44 2,277 1,134 4,592
Sales and marketing...................... 39 412 209 1,134
General and administrative............... 82 547 255 2,175
------ ------- ------- -------
Total operating expenses............... 165 3,297 1,659 8,720
------ ------- ------- -------
Income (loss) from operations.......... (165) (2,806) (1,187) (7,891)
Interest income............................ 10 107 69 341
------ ------- ------- -------
Income (loss) before income taxes...... (155) (2,699) (1,118) (7,550)
Income taxes............................... -- -- -- --
------ ------- ------- -------
Net income (loss)...................... $ (155) $(2,699) $(1,118) $(7,550)
====== ======= ======= =======
Basic and diluted net income (loss) per
share.................................... $(0.06) $ (0.47) $ (0.24) $ (0.57)
====== ======= ======= =======
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 2,333 25,716
Total assets................................................ 1,321 3,892 32,444
Total shareholders' equity.................................. 1,288 3,193 27,353
</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, entered into license agreements with Bank
of America and Wells Fargo 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 primary sources of revenue are revenues generated under our license
agreements and services revenue. 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
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.
Through September 30, 1999, our software development revenue consisted of
amounts earned under our technology license agreement with Bank of Montreal,
which agreement required us to perform the relevant research and development
work on a best efforts basis. There were no specific product deliverables set
forth under the agreement. The revenue relating to this contract has been
recognized ratably over its term.
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, before the offset of stock-based compensation, 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 software development revenue,
before the offset of stock-based compensation, 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.
STOCK-BASED COMPENSATION RELATED TO SOFTWARE DEVELOPMENT REVENUES. 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 in the event that
25
<PAGE>
Bank of Montreal extended its technology license agreement for a second year. 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. This stock-based compensation
charge is being attributed to software development revenue over the term of the
technology license agreement ratably in proportion to the revenue recognized
under the agreement.
Stock-based compensation related to software development revenue increased
from $785,000 for the nine months ended September 30, 1998 to $1.3 million for
the nine months ended September 30, 1999. This increase was primarily due to the
increase in the related software development revenue from $1.0 million for the
nine months ended September 30, 1998 to $1.3 million for the nine months ended
September 30, 1999.
OPERATING EXPENSES
COST OF SERVICES REVENUE. Our cost of services 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.
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.
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 $1.1 million for the nine
months ended September 30, 1998 to $4.6 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.
26
<PAGE>
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.
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, before the offset of stock-based
compensation, for the year ended December 31, 1998, which included $1.7 million
of software development revenue and $208,000 of services revenue. Our software
development revenue consisted of fees under our agreement with Bank of Montreal,
while our services revenue consisted of payments from Bank of Montreal for our
consulting work.
STOCK-BASED COMPENSATION RELATED TO SOFTWARE DEVELOPMENT
REVENUE. Stock-based compensation related to software development revenue was
$1.4 million for the year ended December 30, 1998 and consisted of the ratable
allocation of deferred stock-based compensation arising upon the exercise of the
Bank of Montreal option.
OPERATING EXPENSES
COST OF SERVICES REVENUE. Cost of services revenue was $61,000 for the year
ended December 31, 1998 and consisted of salaries and related expenses for our
consulting work.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$44,000 for the period ended December 31, 1997 to $2.3 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.
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
27
<PAGE>
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:
Software development................ $ -- $ 419 $ 630 $ 629 $ 548 $ 383 $ 383
Services............................ 208 -- -- -- 34 -- 754
Less: Stock-based compensation
related to software development
revenue........................... -- (91) (694) (610) (531) (371) (371)
------ ------ ------ ------- ------- ------- -------
Net revenue....................... 208 328 (64) 19 51 12 766
Operating expenses:
Cost of services revenue............ 61 -- -- -- -- 20 799
Research and development............ 124 372 638 1,143 1,171 1,402 2,019
Sales and marketing................. 27 81 101 203 207 303 624
General and administrative.......... 41 104 110 292 332 629 1,214
------ ------ ------ ------- ------- ------- -------
Total operating expenses.......... 253 557 849 1,638 1,710 2,354 4,656
------ ------ ------ ------- ------- ------- -------
Income (loss) from operations......... (45) (229) (913) (1,619) (1,659) (2,342) (3,890)
Interest income....................... 18 20 31 38 61 28 252
------ ------ ------ ------- ------- ------- -------
Net income (loss)................. $ (27) $ (209) $ (882) $(1,581) $(1,598) $(2,314) $(3,638)
====== ====== ====== ======= ======= ======= =======
Basic and diluted net income (loss)
per share........................... $(0.01) $(0.04) $(0.18) $ (0.17) $ (0.14) $ (0.20) $ (0.22)
====== ====== ====== ======= ======= ======= =======
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>
<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 NET REVENUE:
Revenue:
Software development from a
related party................... 0.0% 127.7% 984.4% 3,310.5% 1,074.5% 3,191.7% 50.0%
Services.......................... 100.0 0.0 0.0 0.0 66.67 0.0 98.4
Less: Stock-based compensation
related to software
development..................... 0.0 (27.7) (1,084.4) (3,210.5) (1,041.2) (3,091.7) (48.4)
----- ----- -------- -------- -------- --------- ------
Net revenue..................... 100.0 100.0 (100.0) 100.0 100.0 100.0 100.0
----- ----- -------- -------- -------- --------- ------
Operating expenses:
Cost of services revenue.......... 29.3 0.0 0.0 0.0 0.0 166.67 104.3
Research and development.......... 59.6 113.4 996.9 6,015.8 2,296.1 1,168.3 263.6
Sales and marketing............... 13.0 24.7 157.8 1,068.4 405.9 2,525.0 81.5
General and administrative........ 19.7 31.7 171.9 1,536.8 651.0 5,241.7 158.5
----- ----- -------- -------- -------- --------- ------
Total operating expenses........ 121.6 169.8 1,326.6 8,621.1 3,352.9 19,616.7 607.8
----- ----- -------- -------- -------- --------- ------
Income (loss) from operations....... (21.6) (69.8) (142.7) (8,521.1) (3,252.9) (19,516.7) (507.8)
Interest income..................... 8.7 6.1 48.4 200.0 119.6 233.3 32.9
----- ----- -------- -------- -------- --------- ------
Net income (loss)............... (13.0) (63.7) (1,378.1) (8,321.1) (3,133.3) (19,283.3) (474.9)
===== ===== ======== ======== ======== ========= ======
</TABLE>
28
<PAGE>
REVENUE
Our quarterly software development revenue, before the offset of stock-based
compensation, for the seven quarters ended September 30, 1999 is derived from
our technology 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.
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.
STOCK-BASED COMPENSATION
From October 1, 1999 to January 20, 2000, we granted options to purchase
approximately 782,436 common shares under our stock option plans at a weighted
average exercise price of $9.29 per share. We have recorded deferred stock-based
compensation related to these options of approximately $6.9 million based upon
the proposed initial public offering price of our common shares. This deferred
stock-based compensation will be amortized on a straight line basis over three
years.
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 months ended September 30, 1999. Net cash used in
operating activities for the nine months ended September 30, 1999 reflects the
operating loss of $7.6 million offset by depreciation of $445,000, amortization
of stock-based compensation of $1.4 million 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.
29
<PAGE>
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. If the net proceeds from this offering are
insufficient to fund our operating expenses, we currently plan to fund these
expenses from cash on hand and revenue from our operations.
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. Although we have not suffered from any of these types of
events to date, we may do so in the future.
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 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
30
<PAGE>
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.
31
<PAGE>
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 this year.
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.
32
<PAGE>
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
33
<PAGE>
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.
34
<PAGE>
- 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
35
<PAGE>
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, 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.
36
<PAGE>
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.
37
<PAGE>
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 this year.
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.
38
<PAGE>
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
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
39
<PAGE>
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 31, 1999, our research and development department consisted
of 103 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, $2.3 million for the year ended
December 31, 1998 and $4.6 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
40
<PAGE>
create mutually beneficial relationships with customers, network service
providers and device manufacturers. As of December 31, 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 diversified holding company whose businesses provide a broad
range of financial services to consumer and corporate customers worldwide. As of
June 30, 1999, Citigroup 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
41
<PAGE>
us to license our technology to Citigroup's subsidiaries. We expect to enter
into one or more additional agreements with a number of Citigroup's
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 will enable it to begin to deliver on-line banking services to its
customers this year.
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. We anticipate that some of these relationships will lead to formal
arrangements in which we incorporate new technologies into our solution, or in
which we adapt our solution to support new types of devices. 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 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 31, 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 31, 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
42
<PAGE>
customers and the network operators and device manufacturers with whom we
work to create marketing programs.
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.
43
<PAGE>
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 31, 1999, we had a total of 183 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.
44
<PAGE>
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
45
<PAGE>
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
46
<PAGE>
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, LYNX
Photonic Networks and Wall Street Access. Mr. Stein has also served as a
director of Sequent Computer Systems, Payment Net and FICS (a Belgian software
company). 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
47
<PAGE>
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 the initial members of our audit committee.
We expect to appoint two new members to our board at the annual shareholder
meeting that we plan to convene this year, each of which will become members of
our audit committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
For the year ended December 31, 1999, our aggregate cash compensation
payments to our executive officers and directors for services rendered in these
capacities was approximately $975,000.
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
$2,600 in 1998.
48
<PAGE>
OPTION GRANTS DURING FISCAL 1998
We granted options under our Canadian stock option plan to the officers
named in the summary compensation table during the year ended December 31, 1998
as follows:
<TABLE>
<CAPTION>
MARKET VALUE OF
COMMON SHARES % OF TOTAL OPTIONS COMMON SHARES
UNDER OPTIONS GRANTED UNDER EXERCISE PRICE UNDERLYING OPTIONS ON
NAME GRANTED (#) PLANS IN 1998 (%) ($/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
49
<PAGE>
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 48,000 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 the
date of this prospectus, options to purchase 2,993,530 shares at a weighted
average exercise price of $3.08 per share have been granted under the Canadian
stock option plan and 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 value in the case of an incentive stock option granted to an
employee who owns common shares having
50
<PAGE>
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.
51
<PAGE>
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.
52
<PAGE>
CITIGROUP
Citigroup has announced its intention to implement our solution worldwide
under the leadership of its e-Citi division. We are working with a number of
Citigroup's 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 $34,000,
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
53
<PAGE>
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.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table provides information regarding the beneficial ownership
of our common shares as of December 31, 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 31, 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 29, 2000.
(4) Includes 20,000 common shares issuable upon the exercise of options that are
presently vested or that vest prior to February 29, 2000. Also includes
14,000 shares issuable upon the exercise of options that are presently
vested or that vest prior to February 29, 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 29, 2000.
55
<PAGE>
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 31, 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 the date of this prospectus.
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.
5. In January 2000, we issued 185,332 common shares for an aggregate
subscription price of approximately $79,850 upon the exercise of employee
stock options.
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.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, based upon the number of common shares
outstanding as of December 31, 1999, 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 and the employees
described below) generally will be freely tradable without restriction or
further registration under the Securities Act of 1933.
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. In addition,
substantially all of our employees that hold options to purchase at least
1,000 common shares that are either currently vested or that vest prior to the
end of that period will be bound by the same obligation. See "Underwriting."
CANADIAN RESALE RESTRICTIONS
Excluding any common shares purchased in this offering, as of December 31,
1999, Canadian residents held 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
57
<PAGE>
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 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 issued or
issuable upon the exercise of outstanding and vested options as of December 31,
1999 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."
58
<PAGE>
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.
59
<PAGE>
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
60
<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 revenues and our anticipated corporate
structure, we may be treated as a passive foreign investment company.
Application of the passive foreign investment company rules requires an annual
analysis of the nature of our revenues and expenses and the value of our assets.
We do not yet have the data that would enable us to conclude whether we will be
a passive foreign investment company for the year 2000 or future years, and we
are unable to predict the nature of our revenues and expenses and value of our
assets with sufficient certainty to conclude whether we are likely to become one
for these years. Moreover, application of the passive foreign investment company
rules to our business is uncertain. 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. In addition, substantially all of
our employees that hold options to purchase at least 1,000 common shares that
are either currently vested or that vest prior to the end of that period will be
bound by the same obligation. 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 110 filed public offerings of equity securities, of which 79 have
been completed, and has acted as a syndicate member in an additional 54 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. In connection with this
offering, several attorneys of Morrison & Foerster LLP are expected to purchase
approximately 12,000 of the common shares that will be offered by the U.S.
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 January 20, 2000
</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 net of deferred stock-based compensation
of Nil as at December 31, 1997; $420 as at December 31,
1998 and $619 as at September 30, 1999.................. -- -- 3,236
------ ------- -------
Total current liabilities............................... 33 699 5,091
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......................... -- (1,705) (150)
Accumulated deficit....................................... (155) (2,854) (10,404)
------ ------- -------
Total shareholders' equity................................ 1,288 3,193 27,353
------ ------- -------
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:
Software development (Related party
transactions -- note 8)........................ $ -- $ 1,678 $ 1,049 $ 1,314
Services......................................... -- 208 208 788
Less: Stock-based compensation related to
software development (notes 4 and 8)........... (1,395) (785) (1,273)
------ ------- ------- -------
Net revenue.................................... 491 472 829
Operating expenses:
Cost of services revenue......................... -- 61 61 819
Research and development......................... 44 2,277 1,134 4,592
Sales and marketing.............................. 39 412 209 1,134
General and administrative....................... 82 547 255 2,175
------ ------- ------- -------
Total operating expenses....................... 165 3,297 1,659 8,720
------ ------- ------- -------
Income (loss) from operations.................. (165) (2,806) (1,187) (7,891)
Interest income.................................... 10 107 69 341
------ ------- ------- -------
Income (loss) before income taxes.............. (155) (2,699) (1,118) (7,550)
Income taxes (note 5).............................. -- -- -- --
------ ------- ------- -------
Net income (loss).............................. $ (155) $(2,699) $(1,118) $(7,550)
====== ======= ======= =======
Basic and diluted net income (loss) per share...... $(0.06) $ (0.47) $ (0.24) $ (0.57)
====== ======= ======= =======
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>
DEFERRED
STOCK-BASED
DEFERRED COMPENSATION
STOCK-BASED RELATED TO
COMMON SHARES COMPENSATION SOFTWARE TOTAL
--------------------- RELATED TO & DEVELOPMENT ACCUMULATED SHAREHOLDERS'
NUMBER AMOUNT STOCK OPTIONS REVENUE DEFICIT EQUITY
---------- -------- ------------- -------------- ----------- -------------
<S> <C> <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)............. -- -- -- -- (2,699) (2,699)
Deferred stock-based
compensation................ -- 414 (414) (3,287) -- (3,287)
Amortization of deferred
stock-based compensation.... -- -- 181 -- -- 181
Allocation of deferred
stock-based compensation to
software development revenue
and deferred revenue........ -- -- -- 1,815 -- 1,815
Issuance on exercise of
options..................... 4,000,000 1,296 -- -- -- 1,296
Issuance of common shares..... 3,428,570 4,599 -- -- -- 4,599
---------- ------- ------- ------- -------- -------
Balances, December 31, 1998... 11,428,570 7,752 (233) (1,472) (2,854) 3,193
Net income (loss)............. -- -- -- -- (7,550) (7,550)
Deferred stock-based
compensation................ -- 41 (41) -- -- --
Amortization of deferred
stock-based compensation.... -- -- 124 -- -- 124
Allocation of deferred
stock-based compensation to
software development revenue
and deferred revenue........ -- -- -- 1,472 -- 1,472
Issuance of common shares..... 7,891,790 30,114 -- -- -- 30,114
---------- ------- ------- ------- -------- -------
Balances, September 30, 1999
(note 12)................... 19,320,360 $37,907 $ (150) $ -- $(10,404) $27,353
========== ======= ======= ======= ======== =======
</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) $(2,699) $(1,118) $(7,550)
Depreciation.................................. -- 88 34 445
Stock-based compensation...................... -- 1,576 939 1,397
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 consists of contract software development revenue and
services revenue. The contract software development revenue was earned under a
fixed fee contract with the Bank of Montreal, which entitled Bank of Montreal to
a world-wide perpetual license for all technology developed, on a best efforts
basis, over the term of the contract. This revenue has been recognized ratably
over the term of the contract. Services revenue includes implementation and
customer service revenue earned on a time and materials basis.
F-7
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In the future, the Company's revenue will primarily be 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
will be recognized when a contract with a customer has been executed, delivery
and acceptance have occurred and the collection of the related receivables is
deemed probable by management. Services revenue will be recognized as the
services are performed. Maintenance and support revenue paid in advance, is
non-refundable and is recognized ratably over the term of the agreements, which
are typically twelve months. Software development, product and services revenue
that have been prepaid but do not yet qualify for recognition as revenue under
the Company's revenue recognition policy is reflected as deferred revenue on the
Company's balance sheet.
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
F-8
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
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.
F-9
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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).
F-10
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY -- (CONTINUED)
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 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>
F-11
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY -- (CONTINUED)
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 relating to options
issued under the Company's Plan 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, and has been recorded as a
research and development expense in each period.
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) $(1,201) $ (498) $(3,360)
Adjustments resulting from:
Scientific research expenses not
deducted for tax............... -- 333 87 770
Stock-based compensation not
deducted for tax............... -- 701 418 622
Other............................ 45 167 (7) 85
---- ------- ------- -------
(24) -- -- (1,883)
Unrecognized benefit of net
operating losses carried
forward.......................... 24 -- -- 1,883
---- ------- ------- -------
Income taxes....................... $ -- $ -- $ -- $ --
==== ======= ======= =======
</TABLE>
F-12
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES -- (CONTINUED)
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 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.
F-13
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Net
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>
Net revenue by geographic locations:
U.S................................... $ -- $ -- $ -- $ 754
Canada................................ -- 491 472 75
------ ------ ------ ------
$ -- $ 491 $ 472 $ 829
====== ====== ====== ======
</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.
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 2,428,570 shares for
Cdn.$1,000,000. On the date of exercise, the fair value of the 2,428,570 common
shares was determined to be Cdn.$6,071,425, resulting in a stock-based
compensation charge related to software development revenue of Cdn.$5,071,425
(U.S.$3,286,943). The stock-based compensation is being attributed to the
software development revenue over the term of the technology license agreement
in proportion to the revenue recognized in the first and second years under the
agreement. The excess of the stock-based compensation over the accumulated
allocation to software development revenue has been netted against the related
deferred revenue with the balance being recorded as deferred stock-based
compensation in shareholders' equity. The parties also agreed to a March 1999
payment date for the second year's licensing fee to coincide with the
commencement of the second year's term. As at 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
F-14
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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.
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.
F-15
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
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.................... -- -- 2,236
</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:
Net revenue:
Software development.................... $ -- $283 $264 $41
Services................................ $ -- $208 $208 $34
</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-16
<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-17
<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) $(2,699) $(7,550)
Compensation expense related to the fair
value of stock options.................... (4) (23) (48)
------- ------- -------
Pro forma net income (loss)................. $ (159) $(2,722) $(7,598)
======= ======= =======
Pro forma net income (loss) per share....... $ (0.06) $ (0.47) $ (0.57)
======= ======= =======
</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. This
warrant expired unexercised.
F-18
<PAGE>
724 SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS -- (CONTINUED)
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 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.
From October 1, 1999 to January 20, 2000, the Company granted options to
acquire 782,436 common shares under its stock option plans at a weighted average
exercise price of $9.29 per share. The Company has recorded deferred stock-based
compensation related to these options of approximately $6.9 million based on the
proposed valuation of its initial public offering. This deferred stock-based
compensation will be amortized on a straight line basis over three years.
F-19
<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>
SECOND AMENDED PRELIMINARY PROSPECTUS DATED JANUARY 24, 2000
THIS 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 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 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, FleetBoston 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. The
Toronto Stock Exchange has conditionally approved the listing of the common
shares under the symbol "SVN". Listing is subject to the Company fulfilling all
of the requirements of The Toronto Stock Exchange on or before April 12, 2000,
including the distribution of the common shares to a minimum number of public
shareholders. 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 to 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 January 20, 2000
</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 net of deferred stock-based compensation
of Nil as at December 31, 1997; $420 as at December 31,
1998 and $619 as at September 30, 1999.................. -- -- 3,236
------ ------- -------
Total current liabilities............................... 33 699 5,091
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......................... -- (1,705) (150)
Accumulated deficit....................................... (155) (2,854) (10,404)
------ ------- -------
Total shareholders' equity................................ 1,288 3,193 27,353
------ ------- -------
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 31, 1999, we had a total of 183 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 AND MATERIAL SUBSIDIARIES
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. The Company also carries on its business through three wholly-owned
subsidiaries: 724 Solutions International SRL, 724 Solutions Corp. and
724 Solutions (UK) Limited, which are corporations incorporated under the laws
of Barbados, the state of Delaware and the United Kingdom, respectively.
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
an insurer, as defined therein, constituted under the laws of the
Province of Quebec other than a guarantee fund)
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 Shareholders' 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 24, 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 24, 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......... $40,075
NASD Filing Fee............................................. 10,500
Canadian Securities Regulators Filing Fees.................. 8,792
Nasdaq National Market listing fee.......................... 95,000
Toronto Stock Exchange listing fee.......................... 18,417
Legal fees and expenses..................................... 1,200,000
Accounting fees and expenses................................ 400,000
Printing and engraving expenses............................. 320,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous expenses...................................... 152,216
----------
TOTAL....................................................... $2,250,000
==========
</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. 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.$1.0 million.
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 the date of this filing, we issued options to our officers,
directors, employees and advisors to purchase an aggregate of 2,993,530 of our
common shares.
In October 1999, in connection with the fulfillment of subscription
obligations and the exercise of common share purchase options, we issued:
(i) 5,450,000 common shares to Citicorp Strategic Technology Corporation for
cash proceeds of $20.8 million; and (ii) 2,658,210 common shares to Bank of
America for cash proceeds of $10.2 million.
In October 1999, we 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 $10.0 million. This warrant
expired unexercised.
In January 2000, we issued an aggregate of 185,332 common shares upon the
exercise of employee stock options for an aggregate exercise price of
Cdn.$30,000.
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 Form of U.S. Underwriting Agreement.
1.2 Form of Canadian Underwriting Agreement.
3.1(3) Articles of Amalgamation of the Registrant.
3.2(3) By-laws of Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NAME OF DOCUMENT
- --------------------- ----------------
<S> <C>
5.1 Opinion of Goodman Phillips & Vineberg, Toronto with respect
to the validity of the shares.
10.1(1) Subscription Agreement between Bank of Montreal, the
Registrant and Blue Sky Capital Corporation, dated
April 30, 1998.
10.2(1) Amended and Restated Unanimous Shareholders' Agreement among
the Registrant and its Shareholders.
10.3(1)(2) Technology License Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.4(1) Mutual Indemnity Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.5(1) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.6(1) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.7(1) Letter Agreement, dated July 26, 1999, between Bank of
Montreal and the Registrant.
10.8(1)(2) 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(1)(2) 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(1) Letter Agreement, dated July 31, 1998, between Dr. Kerry
McLellan and the Registrant.
10.11 Lease, dated April 23, 1998, between Truscan Property
Corporation and the Registrant, as amended.
10.12(1)(2) Master Technology License Agreement, dated December 29,
1999, between Citicorp Strategic Technology Corporation
and the Registrant.
10.13(1) Support Agreement, dated December 29, 1999, among Citicorp
Strategic Technology Corporation, 724 Solutions
International SRL and the Registrant.
10.14 Agreement between the Registrant and Sonoma Mountain
Ventures.
11.1 List of Subsidiaries.
23.1 Consent of Goodman Phillips & Vineberg, Toronto (contained
in Exhibit 5.1).
23.2(1) Consent of Morrison & Foerster LLP.
23.3 Consent of KPMG LLP.
24.1(1) Powers of Attorney (included on the signature pages).
27.1(1) Financial Data Schedule.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
None.
- ------------------------
(1) Previously filed.
(2) 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.
(3) To be filed by amendment.
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 26, 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 26, 2000
Gregory Wolfond executive officer)
*
------------------------------------------- President, General Counsel, January 26, 2000
Christopher Erickson Secretary and Director
*
------------------------------------------- Chief Technology Officer and January 26, 2000
Andre Boysen Director
*
------------------------------------------- Chief Operating Officer and January 26, 2000
Kerry McLellan Director
* Chief Financial Officer
------------------------------------------- (principal financial and January 26, 2000
Karen Basian accounting officer)
*
------------------------------------------- Director January 26, 2000
Lloyd F. Darlington
*
------------------------------------------- Director January 26, 2000
Martin A. Stein
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------------------- Director January 26, 2000
James D. Dixon
*
------------------------------------------- Director January 26, 2000
Harri Vatanen
*
------------------------------------------- Director January 26, 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 26, 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 Form of U.S. Underwriting Agreement.
1.2 Form of Canadian Underwriting Agreement.
3.1(3) Articles of Amalgamation of the Registrant.
3.2(3) By-laws of Registrant.
5.1 Opinion of Goodman Phillips & Vineberg, Toronto with respect
to the validity of the shares.
10.1(1) Subscription Agreement between Bank of Montreal, the
Registrant and Blue Sky Capital Corporation, dated
April 30, 1998.
10.2(1) Amended and Restated Unanimous Shareholders' Agreement among
the Registrant and its Shareholders.
10.3(1)(2) Technology License Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.4(1) Mutual Indemnity Agreement, dated April 30, 1998, between
the Registrant and Bank of Montreal.
10.5(1) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.6(1) Letter Agreement, dated November 27, 1998, between Bank of
Montreal and the Registrant.
10.7(1) Letter Agreement, dated July 26, 1999, between Bank of
Montreal and the Registrant.
10.8(1)(2) 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(1)(2) 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(1) Letter Agreement, dated July 31, 1998, between Dr. Kerry
McLellan and the Registrant.
10.11 Lease, dated April 23, 1998, between Truscan Property
Corporation and the Registrant, as amended.
10.12(1)(2) Master Technology License Agreement, dated December 29,
1999, between Citicorp Strategic Technology Corporation
and the Registrant.
10.13(1) Support Agreement dated December 29, 1999, among Citicorp
Strategic Technology Corporation, 724 Solutions
International SRL and the Registrant.
10.14 Agreement between the Registrant and Sonoma Mountain
Ventures.
11.1 List of Subsidiaries.
23.1 Consent of Goodman Phillips & Vineberg, Toronto (contained
in Exhibit 5.1).
23.2(1) Consent of Morrison & Foerster LLP.
23.3 Consent of KPMG LLP.
24.1(1) Powers of Attorney (included on the signature pages).
27.1(1) Financial Data Schedule.
</TABLE>
- ------------------------
(1) Previously filed.
(2) 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.
(3) To be filed by amendment.
<PAGE>
EXHIBIT 1.1
724 SOLUTIONS INC.
COMMON SHARES
UNDERWRITING AGREEMENT
January , 2000
CREDIT SUISSE FIRST BOSTON CORPORATION,
As Representative of the Several U.S. Underwriters,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. INTRODUCTORY. 724 SOLUTIONS INC., a company incorporated under the
laws of the Province of Ontario, Canada ("COMPANY"), proposes to issue and
sell to the several U.S. Underwriters named in Schedule A hereto ("U.S.
UNDERWRITERS") for whom Credit Suisse First Boston Corporation ("CSFBC") is
acting as U.S. representative ("U.S. REPRESENTATIVE"), [number of common
shares] ("U.S. FIRM SECURITIES") of its common shares ("SECURITIES").
It is understood that the Company is concurrently entering into an
Underwriting Agreement, dated the date hereof ("CANADIAN UNDERWRITING
AGREEMENT"), whereby the Company proposes to issue and sell to the several
Canadian underwriters named in Schedule B hereto ("CANADIAN UNDERWRITERS"),
for whom Nesbitt Burns Inc. is acting as representative ("CANADIAN
REPRESENTATIVE"), Securities ("CANADIAN FIRM SECURITIES") in Canada. The
U.S. Underwriters and the Canadian Underwriters are hereinafter called the
"UNDERWRITERS".
In addition, as set forth below, the Company proposes to issue and sell
(i) to the U.S. Underwriters, at the option of the U.S. Underwriters, an
aggregate of not more than additional Securities ("U.S. OPTIONAL
SECURITIES") and (ii) to the Canadian Underwriters, at the option of the
Canadian Underwriters, an aggregate of not more than additional Securities
("CANADIAN OPTIONAL SECURITIES"). The U.S. Firm Securities and the U.S.
Optional Securities are hereinafter called the "U.S. SECURITIES"; the
Canadian Firm Securities and the Canadian Optional Securities are hereinafter
called the "CANADIAN SECURITIES"; the U.S. Firm Securities and the Canadian
Firm Securities are hereinafter called the "FIRM SECURITIES"; the U.S.
Optional Securities and the Canadian Optional Securities are hereinafter
called the "OPTIONAL SECURITIES"; and the U.S. Securities and the Canadian
Securities are collectively referred to as the "OFFERED SECURITIES". To
provide for the coordination of their activities, the U.S. Underwriters and
the Canadian Underwriters have entered into an Inter-syndicate Agreement
which permits them, among other things, to sell the Offered Securities to
each other for purposes of resale.
The Company hereby agrees with the several U.S. Underwriters as follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several U.S. Underwriters
that:
(a) A registration statement (No. 333-90143) relating to the
Offered Securities, including a form of prospectus relating to the U.S.
securities and a form of prospectus relating to the Canadian
<PAGE>
Securities, has been filed with the Securities and Exchange Commission
("COMMISSION") and either (i) has been declared effective under the
Securities Act of 1933 ("ACT") and is not proposed to be amended or (ii)
is proposed to be amended by amendment or post-effective amendment. If
such registration statement ("INITIAL REGISTRATION STATEMENT") has been
declared effective, either (i) an additional registration statement
("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities
may have been filed with the Commission pursuant to Rule 462(b) ("RULE
462(b)") under the Act and, if so filed, has become effective upon
filing pursuant to such Rule and the Offered Securities all have been
duly registered under the Act pursuant to the initial registration
statement and, if applicable, the additional registration statement or
(ii) such an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and will become effective
upon filing pursuant to such Rule and, upon such filing, the Offered
Securities will all have been duly registered under the Act pursuant to
the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("RULE 462(c)") under the
Act or, in the case of the additional registration statement, Rule
462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to
the initial registration statement or, if filed prior to the execution
and delivery of this Agreement, the additional registration statement
means (i) if the Company has advised the U.S. Representative that it
does not propose to amend such registration statement, the date and time
as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c), or (ii) if
the Company has advised the U.S. Representative that it proposes to file
an amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended by
such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the U.S. Representative that it
proposes to file one, "EFFECTIVE TIME" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "EFFECTIVE DATE" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration statement,
as amended at its Effective Time, including all information contained in
the additional registration statement (if any) and deemed to be a part
of the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if any)
deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("RULE 430A(b)") under the Act,
is hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The
additional registration statement, as amended at its Effective Time,
including the contents of the initial registration statement
incorporated by reference therein and including all information (if any)
deemed to be a part of the additional registration statement as of its
Effective Time pursuant to Rule 430A(b), is hereinafter referred to as
the "ADDITIONAL REGISTRATION STATEMENT". The Initial Registration
Statement and the Additional Registration Statement are herein referred
to collectively as the "REGISTRATION STATEMENTS" and individually as a
"REGISTRATION STATEMENT". The form of prospectus relating to the U.S.
Securities and the form of prospectus relating to the Canadian
Securities, each as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("RULE 424(b)") under the Act or (if no such
filing is required) as included in a Registration Statement, is
hereinafter referred to as the "U.S. PROSPECTUS". The Company also has
prepared and filed with the Canadian securities regulatory authorities
of all of the provinces of Canada a prospectus relating to the Canadian
Securities ("CANADIAN PROSPECTUS"). The Canadian Prospectus is
substantially the same as the form of U.S. Prospectus, except as
described in the Registration Statement; the U.S. Prospectus and the
Canadian Prospectus in their respective forms first used to confirm
sales of the Offered Securities are hereinafter collectively referred to
as the "PROSPECTUSES". No document has been or will be prepared or
distributed in reliance on Rule 434 under the Act.
<PAGE>
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder ("RULES AND REGULATIONS") and did not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit,
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time
of the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of each of the Prospectuses pursuant
to Rule 424(b) or (if no such filing is required) at the Effective Date
of the Additional Registration Statement in which the Prospectuses are
included, each Registration Statement and each of the Prospectuses will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement: on the Effective Date of the Initial
Registration Statement, the Initial Registration Statement and each of
the Prospectuses will conform in all material respects to the
requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or either of the Prospectuses based upon written
information furnished to the Company by any Underwriter through the U.S.
Representative specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the Province of Ontario,
Canada, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectuses;
and the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would
not have a material adverse effect on the condition (financial or
other), business or results of operations of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect").
(d) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business; and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would
not have a Material Adverse Effect; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized
and validly issued and is fully paid and nonassessable; and the capital
stock of each subsidiary owned by the Company, directly or through
subsidiaries, is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement and the Canadian Underwriting Agreement on each Closing Date
(as defined below), such Offered Securities will have been, validly
issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectuses; and
the stockholders of the Company have no preemptive rights with respect
to the Securities.
<PAGE>
(f) Except as disclosed in the Prospectuses and except for the
agreement between the Company and Coxswain Row Capital Corporation dated
August 18, 1999, there are no contracts, agreements or understandings
between the Company and any person that would give rise to a valid claim
against the Company or any U.S. Underwriter or Canadian Underwriter for
a brokerage commission, finder's fee or other like payment in connection
with this offering.
(g) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant
to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under
the Act.
(h) The Offered Securities have been approved for listing on the
Nasdaq Stock Market's National Market and the Toronto Stock Exchange
subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement or the
Canadian Underwriting Agreement in connection with the issuance and sale
of the Offered Securities by the Company, except such as have been
obtained and made under the Act and under the Securities Act of 1934, as
amended, the approval of the National Association of Securities Dealers,
Inc. with respect to its review of the fairness of the underwriting
arrangements relating to this Agreement, and such as may be required
under state or provincial securities laws and except for such consents,
approvals, authorizations, orders or filings the failure of which to
obtain would not have a Material Adverse Effect.
(j) Except as disclosed in the Prospectuses, under current laws
and regulations of Canada and any political subdivision thereof, all
dividends and other distributions declared and payable on the Offered
Securities may be paid by the Company to the holder thereof in United
States dollars or Canadian dollars that may be converted into foreign
currency and freely transferred out of Canada and all such payments made
to holders thereof or therein who are non-residents of Canada will not
be subject to income, withholding or other taxes under laws and
regulations of Canada or any political subdivision or taxing authority
thereof or therein and will otherwise be free and clear of any other
tax, duty, withholding or deduction in Canada or any political
subdivision or taxing authority thereof or therein and without the
necessity of obtaining any governmental authorization in Canada or any
political subdivision or taxing authority thereof or therein.
(k) The execution, delivery and performance of this Agreement and
the Canadian Underwriting Agreement, and the issuance and sale of the
Offered Securities will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any statute,
any rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any material
agreement or instrument to which the Company or any such subsidiary is a
party or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such subsidiary is
subject (with such exceptions as would not have a Material Adverse
Effect), nor will such action result in any violation of the articles
or by-laws of the Company or any such subsidiary. The Company has full
power and authority to authorize, issue and sell the Offered Securities
as contemplated by this Agreement and the Canadian Underwriting
Agreement, respectively.
(l) This Agreement and the Canadian Underwriting Agreement have
been duly authorized, executed and delivered by the Company.
(m) Except as disclosed in the Prospectuses, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects of title that would materially affect
the value thereof or materially interfere with the use made or to be
made thereof by them; and except as disclosed in the Prospectuses, the
<PAGE>
Company and its subsidiaries hold any leased real or personal property
under valid and enforceable leases with no exceptions that would
materially interfere with the use made or to be made thereof by them.
(n) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them, except for such certificates, authorities or permits the failure
of which to possess would not have a Material Adverse Effect, and have
not received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(o) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a Material Adverse Effect.
(p) Except as disclosed in the Prospectuses, to the Company's
knowledge, the Company and its subsidiaries own, possess or can acquire
on reasonable terms, adequate trademarks, trade names and other rights
to inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "INTELLECTUAL PROPERTY
RIGHTS") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with respect
to any intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect. The discoveries, inventions,
products or processes of the Company referred to in the Prospectuses do
not, to the Company's knowledge, infringe or conflict with any
intellectual property right of any third party, where such infringement
or conflict could have a Material Adverse Effect.
(q) Except as disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or, to the Company's knowledge,
affecting the Company, any of its subsidiaries or any of their
respective properties that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under this Agreement
or the Canadian Underwriting Agreement, or which are otherwise material
in the context of the sale of the Offered Securities; and no such
actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectuses present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
except as otherwise disclosed in the Prospectuses such financial
statements have been prepared in conformity with the generally accepted
accounting principles in Canada, applied on a consistent basis; the
supporting schedules included in each Registration Statement present
fairly the information stated therein; and the assumptions used in
preparing the pro forma financial statements included in each
Registration Statement and the Prospectuses provide a reasonable basis
for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
(s) Except as disclosed in the Prospectuses, since the date of the
latest audited financial statements included in the Prospectuses there
has been no material adverse change, nor, to the Company's knowledge,
any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a
whole, and, except as disclosed in or contemplated by the Prospectuses,
there has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectuses, will not be an "investment
company" as defined in the Investment Company Act of 1940.
<PAGE>
(u) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion of
the distribution of the Offered Securities it commences doing such
business.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; and (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets.
(w) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the year
2000 problem (that is, any significant risk that computer hardware or
software applications used by the Company and its subsidiaries will not,
in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000); as a result of such review, the
Company has no reason to believe, and does not believe, that there are
any issues related to the Company's preparedness to address the year
2000 problem that are of a character required to be described or
referred to in the Registration Statement or Prospectuses which have not
been accurately described in the Registration Statement or Prospectuses;
and the Company has implemented year 2000 awareness procedures with its
employees, customers and licensors.
(x) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, the Company agrees to sell to
the U.S. Underwriters, and the U.S. Underwriters agree, severally and not
jointly, to purchase from the Company, at a purchase price of U.S.$ per
share, the respective numbers of shares of U.S. Firm Securities set forth
opposite the names of the U.S. Underwriters in Schedule A hereto.
The Company will deliver the U.S. Firm Securities to the U.S.
Representative for the accounts of the U.S. Underwriters, against payment of
the purchase price in Federal (same day) funds by wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of the Company at the office
of Goodman Phillips & Vineberg, at 10:00 A.M., New York time, on
___________________________, or at such other time not later than seven full
business days thereafter as CSFBC and the Company determine, such time being
herein referred to as the "FIRST CLOSING DATE". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later
than the otherwise applicable settlement date) shall be the settlement date
for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the U.S. Offering and the Canadian Offering. The
certificates for the U.S. Firm Securities so to be delivered will be in
definitive form, in such denominations and registered in such names as CSFBC
requests and will be made available for checking and packaging by the U.S.
Representative at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the
Prospectuses, the U.S. Underwriters may purchase all or less than all of the
U.S. Optional Securities at the purchase price per Security to be paid for
the U.S. Firm Securities. The U.S. Optional Securities to be purchased by
the U.S. Underwriters on any Optional Closing Date (as defined herein) shall
be in the same proportion to all the Optional Securities to be purchased by
the Underwriters on such Optional Closing Date as the U.S. Firm Securities
bear to all the Firm Securities. The Company agrees to sell to the U.S.
Underwriters such U.S. Optional Securities and the U.S. Underwriters agree,
severally and not jointly, to purchase such U.S. Optional Securities. Such
U.S. Optional Securities shall be purchased for the account of each U.S.
Underwriter in the same proportion as the number of shares of U.S. Firm
Securities set forth opposite such U.S. Underwriter's name bears to the total
amount of U.S. Firm Securities set forth opposite such U.S. Underwriter's
name bears to the total number of shares of U.S. Firm Securities (subject to
adjustment by CSFBC to eliminate fractions) and may be purchased by the
<PAGE>
U.S. Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the U.S. Firm Securities. No Optional Securities
shall be sold or delivered unless the U.S. Firm Securities and the Canadian
Firm Securities previously have been, or simultaneously are, sold and
delivered. The right to purchase the U.S. Optional Securities or any portion
thereof may be exercised from time to time and to the extent not previously
exercised may be surrendered and terminated at any time upon notice by CSFBC
on behalf of the U.S. Underwriters to the Company. It is understood that
CSFBC is authorized to make payment for and accept delivery of such Optional
Securities on behalf of the U.S. Underwriters pursuant to the terms of
CSFBC's instructions to the Company.
Each time for the delivery of and payment for the U.S. Optional
Securities, being herein referred to as an "OPTIONAL CLOSING DATE", which may
be the First Closing Date (the First Closing Date and each Optional Closing
Date, if any, being sometimes referred to as a "CLOSING DATE"), shall be
determined by CSFBC but shall be not later than five full business days after
written notice of election to purchase U.S. Optional Securities is given. The
Company will deliver the U.S. Optional Securities being purchased on each
Optional Closing Date to the U.S. Representative for the accounts of the
several U.S. Underwriters, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to
an account drawn to the order of the Company, at the office of Goodman
Phillips & Vineberg. The certificates for the U.S. Optional Securities will
be in definitive form, in such denominations and registered in such names as
CSFBC requests upon reasonable notice prior to such Optional Closing Date and
will be made available for checking and packaging by the U.S. Representative
not later than 10:00 am on the last business day prior to such Optional
Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several U.S.
Underwriters propose to offer the Offered Securities for sale to the public
as set forth in the U.S. Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several U.S. Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement,
the Company will file each of the Prospectuses with the Commission
pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day
following the execution and delivery of this Agreement or (B) the
fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of
this Agreement and an additional registration statement is
necessary to register a portion of the Offered Securities under the
Act but the Effective Time thereof has not occurred as of such
execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective
amendment thereto with the Commission pursuant to and in accordance
with Rule 462(b) on or prior to 10:00 P.M., New York time, on the
date of this Agreement or, if earlier, on or prior to the time
either Prospectus is printed and distributed to any U.S.
Underwriter or Canadian Underwriter, or will make such filing at
such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or either of the related prospectuses or the
Initial Registration Statement, the Additional Registration
Statement (if any) or either of the Prospectuses and will not
effect any such amendment or supplementation to which CSFBC
reasonably objects without CSFBC's prior consent; and the Company
will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop
order proceedings in respect of a Registration Statement and will
use its reasonable efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
<PAGE>
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection
with sales by any U.S. Underwriter, Canadian Underwriter or dealer,
any event occurs as a result of which either or both of the
Prospectuses as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it
is necessary at any time to amend either or both of the
Prospectuses to comply with the Act, the Company will promptly
notify CSFBC of such event and will promptly prepare and file with
the Commission, at its own expense, an amendment or supplement
which will correct such statement or omission or an amendment which
will effect such compliance. Neither CSFBC's consent to, nor the
U.S. Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in
Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make
generally available to its securityholders an earnings statement
covering a period of at least 12 months beginning after the
Effective Date of the Initial Registration Statement (or, if later,
the Effective Date of the Additional Registration Statement) which
will satisfy the provisions of Section 11(a) of the Act. For the
purpose of the preceding sentence, "AVAILABILITY DATE" means the
45th day after the end of the fourth fiscal quarter following the
fiscal quarter that includes such Effective Date, except that, if
such fourth fiscal quarter is the last quarter of the Company's
fiscal year, "AVAILABILITY DATE" means the 90th day after the end
of such fourth fiscal quarter.
(e) The Company will furnish to the U.S. Representative
copies of the Registration Statement which will contain manual
signatures and will include all exhibits, each related preliminary
prospectus relating to the U.S. Securities, and, so long as a
prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any U.S.
Underwriter or dealer, the U.S. Prospectus and all amendments and
supplements to such documents, in each case in such quantities as
CSFBC requests. The U.S. Prospectus shall be so furnished on the
business day following the later of the execution and delivery of
this Agreement or the Effective Time of the Initial Registration
Statement. All other such documents shall be so furnished as soon
as available. The Company will pay the expenses of printing and
distributing to the U.S. Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions as
CSFBC reasonably requests and will continue such qualifications in
effect so long as required for the distribution.
(g) During the period of five years from the Effective Date
of the Initial Registration Statement, the Company will furnish to
the U.S. Representative and, upon request, to each of the other
U.S. Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such
year.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement, for any filing
fees and other expenses (not including fees and disbursements of
the Underwriters' counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of
such jurisdictions in the United States as CSFBC reasonably
requests and the printing of memoranda relating thereto, for the
filing fee incident to, and the reasonable fees and disbursements
of counsel to the U.S. Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. of the
Offered Securities, and any other expenses of the Company in
connection with attending or hosting meetings with prospective
purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectuses
(including any amendments and supplements thereto) to the U.S.
Underwriters.
(i) The Company will indemnify and hold harmless the U.S.
Underwriters against any documentary, stamp or similar issuance
tax, including any interest and penalties, on the creation,
issuance and sale of the Offered Securities and on the execution
and delivery of this Agreement. All payments to be made by the
Company hereunder shall be made without withholding or deduction
for or on account of any present or future taxes, duties or
governmental charges whatsoever unless the
<PAGE>
Company is compelled by law to deduct or withhold such taxes,
duties or charges. In that event, the Company shall pay such
additional amounts as may be necessary in order that the net
amounts received after such withholding or deduction shall equal
the amounts that would have been received if no withholding or
deduction had been made.
(j) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the Commission a registration
statement under the Act relating to, any additional shares of its
Securities or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or
filing, in each case without the prior written consent of CSFBC,
except issuances of Securities pursuant to the conversion or
exchange of convertible or exchangeable securities or the exercise
of warrants or options, in each case outstanding on the date
hereof, grants of employee stock options pursuant to the terms of a
plan in effect on the date hereof, and issuances of Securities
pursuant to the exercise of such options. Notwithstanding the
foregoing, the Company may file a registration statement on Form
S-8 (or any successor form) to register its Common Shares that are
reserved for issuance under its share option plans, and may issue
shares of its capital stock in any bona fide acquisition
transaction involving the purchase of any company, business or
technologies.
6. CONDITIONS OF THE OBLIGATIONS OF THE U.S. UNDERWRITERS. The
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Firm Securities on the First Closing Date and the U.S. Optional Securities
to be purchased on each Optional Closing Date will be subject to the accuracy
of the representations and warranties on the part of the Company herein, to
the accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions precedent:
(a) The U.S. Representative shall have received a letter,
dated the date of delivery thereof (which, if the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of
this Agreement or, if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery
of this Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of KPMG LLP, confirming
that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations
thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(ii) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting
matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net assets, as compared
with amounts shown on the latest balance sheet included in the
Prospectuses;
(B) for the period from the closing date of the latest
income statement included in the Prospectuses to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income
statement included in the Prospectuses, in consolidated
revenue, gross profit, or in total or per share amounts of
consolidated
<PAGE>
net income (loss), except in all cases set forth in clause (A)
above for changes, increases or decreases which the
Prospectuses disclose have occurred or may occur or which are
described in such letter;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of such
letter, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company and its consolidated subsidiaries or, at the date of
the latest available balance sheet read by such accountants,
there was any decrease in consolidated net assets, as compared
with amounts shown on the latest balance sheet included in the
Prospectuses; or
(D) for the period from the closing date of the latest
income statement included in the Prospectuses to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income
statement included in the Prospectuses, in consolidated
revenue, gross profit, or in total or per share amounts of
consolidated net income (loss), except in all cases set forth
in clauses (A), (B) and (C) above for changes, increases or
decreases which the Registration Statement and the
Prospectuses disclose have occurred or may occur or which are
described in such letter; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case
to the extent that such dollar amounts, percentages and other
financial information are derived from the general accounting
records of the Company and its subsidiaries subject to the internal
controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have
found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as
otherwise specified in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case
to the extent that such dollar amounts, percentages and other
financial information are derived from the general accounting
records of the Company and its subsidiaries subject to the internal
controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "REGISTRATION STATEMENTS" shall mean
the initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to
its Effective Time, (ii) if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional
Registration is subsequent to such execution and delivery,
"REGISTRATION STATEMENTS" shall mean the Initial Registration
Statement and the additional registration statement as proposed to
be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and
(iii) "PROSPECTUSES" shall mean the prospectuses included in the
Registration Statements.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this
Agreement, such Effective Time shall have occurred not later than
10:00 P.M., New York time, on the date of this Agreement or such
later time and date as shall have been consented to by CSFBC. If
the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M.,
New York time, on the date of this Agreement or, if earlier, the
time either Prospectus is printed and distributed to any U.S.
Underwriter or Canadian Underwriter, or shall have occurred at such
later date as shall have been consented to by CSFBC. If the
Effective Time of the Initial Registration Statement is prior to
the execution
<PAGE>
and delivery of this Agreement, each of the Prospectuses shall have
been filed with the Commission in accordance with the Rules and
Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings
for that purpose shall have been instituted or, to the knowledge of
the Company or the U.S. Representative, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as one
enterprise which, in the judgment of a majority in interest of the
U.S. Underwriters including the U.S. Representative, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for
the U.S. Securities; (ii) any material suspension or material
limitation of trading in securities generally on the New York Stock
Exchange, the NASDAQ National Market or The Toronto Stock Exchange,
or any setting of minimum prices for trading on such exchange, or
any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (iii) any banking
moratorium declared by U.S. Federal, New York or Canadian federal
or provincial authorities; or (iv) any outbreak or escalation of
major hostilities in which the United States or Canada is involved,
any declaration of war by Congress, the Canadian Prime Minister
and/or Parliament or any other substantial national or
international calamity or emergency if, in the judgment of a
majority in interest of the U.S. Underwriters including the U.S.
Representative, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or
inadvisable to proceed with completion of the public offering or
the sale of and payment for the U.S. Securities.
(d) The U.S. Representative shall have received an opinion,
dated such Closing Date, of Morrison & Foerster LLP, United States
counsel for the Company, to the effect that:
(i) Except as set forth in the Registration
Statement and the Prospectuses, no holders of the Company's
common shares or other securities have registration rights
with respect to securities of the Company and, except as set
forth in the Registration Statement and the Prospectuses, all
holders of securities of the Company having rights to
registration of such common shares or other securities because
of the filing of the Registration Statement by the Company
have, with respect to the offering contemplated thereby,
waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent
to file the Registration Statement;
(ii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by
the Underwriting Agreements, and the application of the net
proceeds therefrom as described in the Prospectuses, an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(iii) No authorization, approval, consent or order
of, or filing with, any governmental authority or agency or
any court is required in connection with the transactions
contemplated by this Agreement, except such as have been
obtained and made under the Act and such as may be required
under state securities laws or blue sky laws in connection
with the purchase and distribution of the Offered Securities
by the several Underwriters;
(iv) The execution and delivery of the Underwriting
Agreements and the performance by the Company of their terms
do not violate or result in a violation of any judgment, order
or decree of any court or arbiter, to which the Company is a
party, and to our knowledge after reasonably investigation,
will not constitute a material breach of the terms, conditions
or provisions of or constitute a default under any contract,
undertaking, indenture or other agreement by which the Company
is now bound or to which it is now a party that is described
in the certificate of an officer of the Company, a copy of
which is attached to such opinion;
<PAGE>
(v) The Registration Statement has become effective
under the Act, and no stop order suspending the effectiveness
of the Registration Statement or any part thereof has been
issued or any proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(vi) This Agreement and the Canadian Underwriting
Agreement have been duly executed and delivered by the Company;
(vii) 724 Solutions Corp. (the "U.S. Subsidiary") is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full
corporate power and authority to conduct its business. The
U.S Subsidiary is duly qualified to transact business as a
foreign corporation in the State of California; all of the
issued and outstanding capital stock of the U.S Subsidiary is
owned by the Company, and to the best of such counsel's
knowledge, free and clear of any security interest, claim,
lien, encumbrance and or adverse interest;
(viii) The execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene any provision of applicable
federal law of the United States or the laws of the State of
New York;
(ix) The information in the Prospectuses under the
captions "Certain Transactions," "Shares Eligible for Future
Sale - U.S. Resale Restrictions," and "Consequences - U.S.
Federal Income Tax Considerations," to the extent that such
information constitutes matters of law or legal conclusions is
a fair summary in all material respects of such matters and
conclusions;
(x) To such counsel's knowledge, there are no
material pending or threatened action, suit or proceeding
before any court or governmental agency, authority or body or
any arbitrator involving the Company, other than such actions,
suits or proceedings as are described in the Prospectuses.
There is no contract or other document known to such counsel
of a character required to be described in the Prospectuses or
to be filed as an exhibit to the Registration Statement that
is not described or filed as required; and
(xi) such counsel shall state that it has
participated in conferences with the Underwriters'
representatives and with representatives of the Company and
its accountants concerning the Registration Statement and the
Prospectuses and have considered the matters required to be
stated therein and the statements contained therein, although
it has not independently verified the accuracy, completeness
or fairness of such statements, and that, based upon and
subject to the foregoing, nothing has come to such counsel's
attention that leads such counsel to believe that the
Registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
that the Prospectuses, at the time they were filed with the
Commission pursuant to Rule 424 (b) under the Act or as of the
date of such opinion, contained an untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading (it being understood that such counsel shall not be
required to make any comment with respect to the financial
statements, supporting schedules, footnotes, and other
financial information contained in the Registration Statement
or the Prospectuses).
In rendering such opinion, Morrison & Foerster LLP may rely as
to all matters governed by Canadian law upon the opinion of
Goodman Phillips & Vineberg.
(e) The U.S. Representative shall have received an opinion,
dated such Closing Date, of each of Osler, Hoskin & Harcourt,
Canadian counsel to the Underwriters, and Goodman Phillips &
Vineberg, Canadian counsel for the Company, to the effect that:
<PAGE>
(i) The Company has been duly incorporated and is
an existing corporation under the laws of the Province of
Ontario, Canada, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectuses; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) The Offered Securities delivered on such
Closing Date and all other outstanding common shares of the
Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description
thereof contained in the Prospectuses; and the shareholders of
the Company have no preemptive or similar rights arising under
(A) any Canadian or Province of Ontario statute, rule or
regulation with respect to the Securities or (B) the articles,
by-laws or agreement of the Company once shares have been
issued pursuant to 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 Commission;
(iii) The statements (A) in the Prospectuses under
the captions and Prospectus in "Risk Factors - Our product
contains encryption technology whose export is restricted by
U.S. and Canadian Law," "Certain Transactions," "Shares
Eligible for Future Sale - Canadian Resale Restrictions and
Escrowed Securities," "Income Tax Consequences - Canadian
Federal Income Tax Considerations" and (B) in the Registration
Statement in Item 15 are accurate in all material respects;
(iv) The Company holds all material licenses,
certificates and permits from federal governmental authorities
in Canada and provincial authorities in the Province of
Ontario which are necessary to the conduct of its business;
(v) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or any
court of Canada or the Province of Ontario is required for the
consummation of the transactions contemplated by this
Agreement in connection with the issuance or sale of the U.S.
Offered Securities by the Company;
(vi) The execution, delivery and performance of this
Agreement and the Canadian Underwriting Agreement and the
issuance and sale of the Offered Securities will not result in
a breach or violation of any of the terms and provisions of,
or constitute a default under (A) any Canadian or Province of
Ontario statute, rule, regulation or order of any governmental
agency or body or any court of Canada or the Province of
Ontario having jurisdiction over the Company or any subsidiary
of the Company formed under the laws of Canada or the Province
of Ontario or any of their properties or (B) the articles or
by-laws of the Company or any such subsidiary, and the Company
has full corporate power and authority to own its properties
and conduct its business as described in the Prospectus and to
authorize, issue and sell the Offered Securities as
contemplated by this Agreement and the Canadian Underwriting
Agreement;
(vii) Each subsidiary of the Company which is
incorporated under the laws of Canada or the Province of
Ontario has been duly incorporated and is an existing
corporation under such laws of Canada or the Province of
Ontario, as the case may be, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus;
(viii) Except as disclosed in the Prospectuses, under
current Canadian federal or Ontario provincial laws and
regulations, all dividends and other distributions declared
and payable on the Offered Securities may be paid by the
Company to the holder thereof in United States dollars or
Canadian Dollars that may be converted into foreign currency
and freely transferred out of Canada and all such payments
made to holders thereof or therein who are non-residents of
Canada will not be subject to income, withholding or other
taxes under Canadian federal or
<PAGE>
Ontario provincial laws and regulations thereof or therein and
will otherwise be free and clear of any other tax, duty,
withholding or deduction in Canada and without the necessity
of obtaining any Canadian federal or Ontario provincial
governmental authorization;
(ix) to the best of such counsel's knowledge, there
are no legal or governmental proceedings in Canada pending or
threatened to which the Company or any of its subsidiaries is
a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be
described in the Prospectuses and are not so described or of
any statutes, regulations, contracts or other documents that
are required to be described in the Prospectuses;
(x) This Agreement and the Canadian Underwriting
Agreement has been duly authorized, executed and delivered by
the Company;
(xi) A court of competent jurisdiction in the
Province of Ontario (a "CANADIAN COURT") would give effect to
the choice of the laws of New York State ("NEW YORK STATE
LAW") as the proper law governing the enforcement of this
Agreement, provided that such choice of law is bona fide (in
the sense that it was not made with a view to avoiding the
consequences of the laws of any other jurisdiction) and
provided that such choice of law is not contrary to public
policy as that term is understood under the laws of the
Province of Ontario and the federal laws of Canada applicable
therein by Canadian courts. To the best of such counsel's
knowledge, the choice of New York State Law as the proper law
governing the enforcement of this Agreement is not contrary to
public policy, as such term is understood under the laws of
the Province of Ontario and the federal laws of Canada
applicable therein;
(xii) If this Agreement is sought to be enforced in
the Province of Ontario in accordance with the laws applicable
thereto as chosen by the parties, namely New York State Law, a
Canadian Court would recognize the choice of New York State
Law and, upon appropriate evidence as to such law being
specifically pleaded and proved, apply such law, subject to
the following qualifications:
(a) the qualifications in the paragraph above
regarding the validity of the choice of New York State
Law as the governing law;
(b) in the matters of procedures, the laws of
the Province of Ontario will be applied; and
(c) a Canadian Court has an inherent power to
decline to hear such an action if it is contrary to
public policy, as such term is understood under the laws
of the Province of Ontario and the federal laws of Canada
applicable therein, for it to do so, or if it is not the
proper forum to hear such action, or if concurrent
proceedings are being brought elsewhere.
To the best of such counsel's knowledge, none of the
provisions of this Agreement are contrary to public policy,
as such term is understood under the laws of the Province of
Ontario and the federal laws of Canada applicable therein,
except that rights of indemnity and contribution under this
Agreement may be contrary to public policy;
(xiii) A Canadian Court would enforce a final and
conclusive judgment IN PERSONAM of a federal or state court
sitting in the Borough of Manhattan, the City of New York, New
York (a "NEW YORK COURT") that is subsisting and unsatisfied
respecting the enforcement of this Agreement which is not
impeachable as void or voidable under New York State Law, for
a sum certain if:
<PAGE>
(a) the court rendering such judgment has
jurisdiction over the judgment debtor, as recognized
by Canadian Courts (and submission by the Company to
the jurisdiction of New York pursuant to this
Agreement will be sufficient for this purpose);
(b) such judgment was not obtained by
fraud or in a manner contrary to natural justice and
the enforcement thereof would not be inconsistent
with public policy, as such term is understood under
the laws of the Province of Ontario and the federal
laws of Canada applicable therein;
(c) the enforcement of such judgment does
not constitute, directly or directly, the
enforcement of foreign revenue or penal laws; and
(d) there has been compliance with the
LIMITATIONS ACT (Ontario), which provides that any
action to enforce a foreign judgment must be
commenced within six years of the date of the
foreign judgment;
except that a Canadian Court may avoid the enforcement of
judgments relating to the rights of indemnity and
contribution under this Agreement as being contrary to
public policy. In such counsel's opinion, there is some
doubt as to the enforceability in Canada, against the
Company or against any of the respective directors,
officers and experts who are not residents of the United
States, by a court in original actions or in actions to
enforce judgments of United States courts, of civil
liabilities predicated solely upon United States federal
securities laws; and
(xiv) In an action on a final and conclusive
judgment IN PERSONAM of a New York Court that is not
impeachable as void or voidable under New York State Law, a
Canadian Court would not refuse to give effect to the
appointment by the Company of CT Corporation System, New
York, New York, as its agent for service in the United
States under this Agreement and to the provision in this
Agreement whereby the Company has submitted to the
non-exclusive jurisdiction of a New York Court.
(f) The U.S. Representative shall have received from
Shearman & Sterling, United States counsel for the
Underwriters, such opinion or opinions, dated such Closing
Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing
Date, the Registration Statements, the Prospectuses and other
related matters as the U.S. Representative may reasonably
require, and the Company shall have furnished to such counsel
such documents as they shall reasonably request for the
purpose of enabling them to pass upon such matters. In
rendering such opinion, Shearman & Sterling may rely as to the
incorporation of the Company and all other matters governed by
Canadian law upon the opinion of Osler Hoskin and Harcourt
referred to above.
(g) The U.S. Representative shall have received a
certificate, dated such Closing Date, of the President or any
Vice President and a principal financial or accounting officer
of the Company in which such officers, to the best of their
knowledge after reasonable investigation, shall state that:
the representations and warranties of the Company in this
Agreement are true and correct as of such Closing Date; the
Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
Rule 462(b) was filed pursuant to Rule 462(b), including
payment of the applicable filing fee in accordance with Rule
111(a) or (b) under the Act, prior to the time either
Prospectus was printed and distributed to any U.S. Underwriter
or Canadian Undewriter; and, subsequent to the date of the
most recent financial statements in the Prospectuses, there
has been no material adverse change, nor, to the Conpany's
knowledge, any development or event involving a prospective
material adverse change, in the condition (financial or
other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set
forth in or contemplated by the Prospectuses.
<PAGE>
(h) The U.S. Representative shall have received a
letter, dated such Closing Date, from KPMG LLP which meets
the requirements of subsection (a) of this Section, except
that the specified date referred to in such subsection will be
a date not more than three business days prior to such Closing
Date for the purposes of this subsection.
(i) The U.S. Representative shall have received written
agreements in the form of Schedule C hereto (collectively,
"LOCK-UP AGREEMENTS") from the holders of substantially all of
its outstanding Securities, and all securities convertible
into or exercisable or exchangeable for Securities, including
all of the Company's principal stockholders.
(j) The U.S. Representative shall have received such
other documents and certificates as are reasonably requested
by it or its counsel.
(k) On such Closing Date, the Canadian Underwriters
shall have purchased the Canadian Firm Securities or the
Canadian Optional Securities, as the case may be, pursuant to
the Canadian Underwriting Agreement.
The Company will furnish the U.S. Representative with such conformed copies
of such opinions, certificates, letters and documents as the U.S.
Representative reasonably requests. CSFBC may in its sole discretion waive
on behalf of the U.S. Underwriters compliance with any conditions to the
obligations of the U.S. Underwriters hereunder, whether in respect of an
Optional Closing Date or otherwise.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each U.S.
Underwriter, its partners, directors and officers and each person,
if any, who controls such U.S. Underwriter within the meaning of
Section 15 of the Act, against any losses, claims, damages or
liabilities, joint or several, to which such U.S. Underwriter may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration
Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse
each U.S. Underwriter for any legal or other expenses reasonably
incurred by such U.S. Underwriter in connection with investigating
or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Company
will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the U.S. Representative specifically for use
therein, it being understood and agreed that the only such
information furnished by any U.S. Underwriter consists of the
information described as such in subsection (b) below, and provided
further, that with respect to any untrue statement in or omission
from any preliminary prospectus the indemnity agreement contained
in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims,
damages or liabilities purchased the Offered Securities concerned,
to the extent that a prospectus relating to such Offered Securities
was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damages or
liability of such Underwriter results from the fact that there was
not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person,
a copy of the U.S. Prospectus (as then amended or supplemented) if
the Company had previously furnished copies thereof to such
Underwriter.
Insofar as the foregoing indemnity agreement, or the
representations and warranties contained in Section 2(b), may
permit indemnification for liabilities under the Act of any person
who is a U.S.
<PAGE>
Underwriter or a partner or controlling person of an Underwriter
within the meaning of Section 15 of the Act and who, at the date of
this Agreement, is a director, officer or controlling person of the
Company, the Company has been advised that in the opinion of the
Commission such provisions may contravene Federal public policy as
expressed in the Act and may therefore be unenforceable. In the
event that a claim for indemnification under such agreement or such
representations and warranties for any such liabilities (except
insofar as such agreement provides for the payment by the Company
of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding)
is asserted by such a person, the Company will submit to a court of
appropriate jurisdiction (unless in the opinion of counsel for the
Company the matter has already been settled by controlling
precedent) the question of whether or not indemnification by it for
such liabilities is against public policy as expressed in the Act
and therefore unenforceable, and the Company will be governed by
the final adjudication of such issue.
(b) Each U.S. Underwriter will severally and not jointly
indemnify and hold harmless the Company, its directors and officers
and each person, if any, who controls the Company within the
meaning of Section 15 of the Act, against any losses, claims,
damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, either of
the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon
the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company
by such Underwriter through the U.S. Representative specifically
for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company in connection with investigating
or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the
only such information furnished by the Underwriters consists of (i)
the following information in the U.S. Prospectus furnished on
behalf of each U.S. Underwriter: the legend concerning dealer
delivery obligations on the inside front cover page; (ii) the
following information in the Prospectuses furnished under the
caption "Underwriting" on behalf of each Underwriter: the
description of the intersyndicate agreement between the U.S.
Underwriters and the Canadian Underwriters, the concession and
reallowance figures appearing in the 6th paragraph, the information
contained in the ninth, 14th, 15th, 16th and 18th paragraphs; and
(iii) the information in the 17th paragraph furnished by Thomas
Weisel Partners LLC.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under subsection (a) or (b) above,
notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party under
paragraphs (a) or (b) if the party to whom notice was not given was
materially prejudiced by the failure to give such notice. In case
any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party
to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of
any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such
settlement (i) includes an unconditional release of such
indemnified party from all liability on any claims that are the
subject matter of such action and (ii) does
<PAGE>
not include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of an indemnified
party.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (i) in such proportion
as is appropriate to reflect the relative benefits received by the
Company on the one hand and the U.S. Underwriters on the other from
the offering of the U.S. Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the U.S. Underwriters on
the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as
any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the U.S. Underwriters
on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting discounts
and commissions received by the U.S. Underwriters. The relative
fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the U.S.
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue
statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investgating or defending any
action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), no U.S.
Underwriter shall be required to contribute any amount in excess of
the amount by which the total price at which the U.S. Securities
underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such U.S.
Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The U.S. Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall
be in addition to any liability which the Company may otherwise
have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any U.S. Underwriter; and the
obligations of the U.S. Underwriters under this Section shall be in
addition to any liability which the respective U.S. Underwriters
may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the
Company who has signed a Registration Statement and to each person,
if any, who controls the Company within the meaning of the Act.
8. DEFAULT OF U.S. UNDERWRITERS. If any U.S. Underwriter or U.S.
Underwriters default in their obligations to purchase U.S. Securities
hereunder on either the First or any Optional Closing Date and the aggregate
number of shares of U.S. Securities that such defaulting U.S. Underwriter or
U.S. Underwriters agreed but failed to purchase does not exceed 10% of the
total number of shares of U.S. Securities that the U.S. Underwriters are
obligated to purchase on such Closing Date, CSFBC may make arrangements
satisfactory to the Company for the purchase of such U.S. Securities by other
persons, including any of the Underwriters, but if no such arrangements are
made by such Closing Date, the non-defaulting U.S. Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder,
to purchase the U.S. Securities that such defaulting Underwriters agreed but
failed to purchase on such Closing Date. If any U.S. Underwriter or
Underwriters so default and the aggregate number of shares of U.S. Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of U.S. Securities that the U.S. Underwriters are obligated
to purchase on such Closing Date and arrangements satisfactory to CSFBC and
the Company for the purchase of such U.S. Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate
without liability on the part of any
<PAGE>
non-defaulting U.S. Underwriter or the Company, except as provided in Section
9 (provided that if such default occurs with respect to U.S. Optional
Securities after the First Closing Date, this Agreement will not terminate as
to the U.S. Firm Securities or any U.S. Optional Securities purchased prior
to such termination). As used in this Agreement, the term "U.S. Underwriter"
includes any person substituted for a U.S. Underwriter under this Section.
Nothing herein will relieve a defaulting U.S. Underwriter from liability for
its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers and of the several U.S.
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation, or statement as to
the results thereof, made by or on behalf of any U.S. Underwriter, the
Company or any of their respective representatives, officers or directors or
any controlling person, and will survive delivery of and payment for the U.S.
Securities. If this Agreement is terminated pursuant to Section 8 or if for
any reason the purchase of the U.S. Securities by the U.S. Underwriters is
not consummated, the Company shall remain responsible for the expenses to be
paid or reimbursed by it pursuant to Section 5 and the respective obligations
of the Company and the U.S. Underwriters pursuant to Section 7 shall remain
in effect, and if any U.S. Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section
5 shall also remain in effect. If the purchase of the U.S. Securities by the
U.S. Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence
of any event specified in clause (iii), (iv) or (v) of Section 6(c), the
Company will reimburse the U.S. Underwriters for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by them in
connection with the offering of the U.S. Securities.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the U.S. Underwriters, will be mailed, delivered or telegraphed and
confirmed to the U.S. Representative, Eleven Madison Avenue, New York, N.Y.
10010-3629, Attention: Investment Banking Department Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or telegraphed
and confirmed to it at 4101 Yonge Street, Suite 702, Toronto, ON M2P IN6,
Attention: Christopher Erickson, with a copy to Morrison & Foerster LLP, 1290
Avenue of the Americas, New York, New York 10104, Attention: Mark L. Mandel,
Esq., provided, however, that any notice to a U.S. Underwriter pursuant to
Section 7 will be mailed, delivered or telegraphed and confirmed to such U.S.
Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and
no other person will have any right or obligation hereunder. No purchaser of
any of the Offered Securities from any Underwriter shal be deemed a successor
or assign solely by reason of such purchase.
12. REPRESENTATION OF U.S. UNDERWRITERS. The U.S. Representative will
act for the several U.S. Underwriters in connection with this financing, and
any action under this Agreement taken by the U.S. Representative shall bind
all the U.S. Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. The Company has appointed CT Corporation
System, 111 8th Avenue, New York, NY 10011, as its authorized agent in the
Borough of Manhattan in The City of New York upon which process may be served
in any such suit or proceeding, and agrees that service of process upon such
agent, and written notice of said service to the Company by the person
serving the same to the address provided in Section 10, shall be deemed in
every respect effective service of process upon the Company in any such suit
or proceeding. The Company further agrees to take any and all action as may
be necessary to maintain such designation and appointment of such agent in
full force and effect for a period of five years from the date of this
Agreement.
<PAGE>
The obligation of the Company in respect of any sum due to any U.S.
Underwriter shall, notwithstanding any judgment in a currency other than
United States dollars, not be discharged until the first business day,
following receipt by such U.S. Underwriter of any sum adjudged to be so due
in such other currency, on which (and only to the extent that) such U.S.
Underwriter may in accordance with normal banking procedures purchase United
States dollars with such other currency; if the United States dollars so
purchased are less than the sum originally due to such U.S. Underwriter
hereunder, the Company agrees, as a separate obligation and notwithstanding
any such judgment, to indemnify such U.S. Underwriter against such loss. If
the United States dollars so purchased are greater than the sum originally
due to such U.S. Underwriter hereunder, such U.S. Underwriter agrees to pay
to the Company an amount equal to the excess of the dollars so purchased over
the sum originally due to such U.S. Underwriter hereunder.
<PAGE>
If the foregoing is in accordance with the U.S. Representative's
understanding of our agreement, kindly sign and return to the Company one of
the counterparts hereof, whereupon it will become a binding agreement between
the Company and the several U.S. Underwriters in accordance with its terms.
Very truly yours,
724 SOLUTIONS INC.
By
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By __________________________________
Name:
Title:
Acting on behalf of itself and as the
U.S. Representative of the several U.S. Underwriters:
Credit Suisse First Boston Corporation
Banc Boston Robertson Stephens Inc.
Thomas Weisel Partners LLC
<PAGE>
SCHEDULE A
NUMBER OF
UNDERWRITER U.S. FIRM SECURITIES
----------- --------------------
Credit Suisse First Boston Corporation
FleetBoston Robertson Stephens Inc.
Thomas Weisel Partners
Total
<PAGE>
SCHEDULE B
NUMBER OF
UNDERWRITER CANADIAN FIRM SECURITIES
----------- ------------------------
Nesbitt Burns Inc. .................................
RBC Dominion Securities Inc.
Credit Suisse First Boston Securities Canada Inc. ...
Total ...............................
==============
<PAGE>
SCHEDULE C
[form of lock-up agreement]
<PAGE>
724 SOLUTIONS INC.
INITIAL PUBLIC OFFERING OF COMMON SHARES
CANADIAN UNDERWRITING AGREEMENT
- , 2000
Nesbitt Burns Inc.
RBC Dominion Securities Inc.
Credit Suisse First Boston Securities Canada Inc.
Ladies and Gentlemen:
724 Solutions Inc. (the "CORPORATION"), a corporation incorporated
under the laws of the Province of Ontario, proposes, subject to the terms and
conditions stated in this Agreement, to issue and sell Common Shares of the
Corporation in an offering to be conducted in Canada and the United States. The
Corporation proposes to issue and sell an aggregate of - Common Shares (the
"CANADIAN FIRM SHARES") in Canada to Nesbitt Burns Inc., RBC Dominion Securities
Inc. and Credit Suisse First Boston Securities Canada Inc. (collectively, the
"CANADIAN UNDERWRITERS"), for whom Nesbitt Burns Inc. is acting as Canadian
representative (the "CANADIAN REPRESENTATIVE") and, at the election of the
Canadian Underwriters, to issue and sell up to - additional Common Shares (the
"ADDITIONAL CANADIAN SHARES") to the Canadian Underwriters for the purpose of
covering over-allotments, if any, made in connection with the offering. The
Canadian Firm Shares and the Additional Canadian Shares, if any, are referred to
herein collectively as the "CANADIAN SHARES" and the offering of the Canadian
Shares is referred to herein as the "CANADIAN OFFERING".
The parties hereto acknowledge that the Corporation is concurrently
entering into an agreement dated the date hereof (the "U.S. UNDERWRITING
AGREEMENT") pursuant to which the Corporation proposes to issue and sell an
aggregate of - Common Shares (THE "U.S. FIRM SHARES") in the United States to
Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens Inc. and
Thomas Weisel Partners LLC (collectively, the "U.S. UNDERWRITERS"), for whom
Credit Suisse First Boston Corporation is acting as U.S. representative (the
"U.S. REPRESENTATIVE") and, at the election of the U.S. Underwriters, up to -
additional Common Shares (the "ADDITIONAL U.S. SHARES") for the purpose of
covering over-allotments, if any, made in connection with the offering. The U.S.
Firm Shares and the Additional U.S. Shares, if any, are referred to herein
collectively as the "U.S. SHARES" and the offering of the U.S. Shares is
referred to herein as the "U.S. OFFERING".
The Corporation understands that the Canadian Underwriters will
simultaneously enter into an agreement with the U.S. Underwriters dated the date
hereof (THE "INTER-SYNDICATE AGREEMENT") providing for, among other things, the
coordination of certain transactions among the Canadian Underwriters and the
U.S. Underwriters.
<PAGE>
-2-
ARTICLE 1
DEFINITIONS
1.1 IN THIS AGREEMENT:
"1933 ACT" means the UNITED STATES SECURITIES ACT OF 1933, as amended;
"1934 ACT" means the United States Securities Exchange Act of 1934, as
amended;
"ADDITIONAL CANADIAN SHARES" has the meaning given to such term above;
"ADDITIONAL U.S. SHARES" has the meaning given to such term above;
"ADDITIONAL SHARES" means the Additional Canadian Shares together with
the Additional U.S. Shares;
"AFFILIATE", "DISTRIBUTION", "MATERIAL CHANGE", "MATERIAL FACT",
"MISREPRESENTATION", and "SUBSIDIARY" when used in connection with
the Canadian Final Prospectus or any Prospectus Amendment thereto
shall have the respective meanings given to them in the SECURITIES
ACT (Ontario) and when used in connection with the U.S. Registration
Statement, U.S. Preliminary Prospectus, U.S. Final Prospectus or any
Prospectus Amendment thereto shall have the meaning (to the extent
applicable) under the U.S. Securities Laws including judicial and
administrative interpretations thereof;
"AGREEMENT" means this agreement;
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a
statutory or civic holiday in the City of Toronto, Canada;
"CANADIAN FINAL PROSPECTUS" means the final long form prospectus of
the Corporation relating to the distribution of the Canadian Shares,
prepared and filed with the Canadian Securities Regulators in
accordance with Canadian Securities Laws;
"CANADIAN FIRM SHARES" has the meaning given to such term above;
"CANADIAN GAAP" means accounting principles generally accepted in
Canada;
"CANADIAN OFFERING" has the meaning given to such term above;
"CANADIAN PRELIMINARY PROSPECTUS" means, collectively, the
preliminary long form prospectus of the Corporation dated -, 1999
and the Amended Preliminary Prospectus dated January 12, 2000
relating to the distribution of the Canadian Shares and prepared and
filed with the Canadian Securities Regulators in accordance with
Canadian Securities Laws;
<PAGE>
-3-
"CANADIAN PRICING PROSPECTUS" means the supplemented Canadian Final
Prospectus, incorporating the PREP Information, to be dated January
-, 2000 (in both the English and French languages unless the context
indicates otherwise) used in Canada.
"CANADIAN REPRESENTATIVE" has the meaning given to such term above;
"CANADIAN SECURITIES LAWS" means all applicable securities laws in
each of the Qualifying Provinces and the respective regulations and
rules under such laws together with applicable published policy
statements of the Canadian Securities Administrators and the
Canadian Securities Regulators;
"CANADIAN SECURITIES REGULATORS" means the applicable securities
commission or regulatory authority in each of the Qualifying
Provinces;
"CANADIAN SHARES" has the meaning given to such term above;
"CANADIAN UNDERWRITERS" has the meaning given to such term above, and
"CANADIAN UNDERWRITER" means any one of them;
"CLAIM" has the meaning given to it in Section 12.3 of this Agreement;
"CLOSING DATE" means the date of the First Time of Delivery;
"COMMON SHARES" means the common shares in the capital of the
Corporation;
"CORPORATION" means 724 Solutions Inc.;
"CORPORATION'S CANADIAN COUNSEL" means the law firm of Goodman,
Phillips & Vineberg;
"CORPORATION'S U.S. COUNSEL" means the law firm of Morrison & Foerster
LLP;
"DIRECTED SHARE PROGRAM" means the issuance by the U.S. Underwriters
and Canadian Underwriters of up to 10% of the Shares to the
Corporation's employees, directors and certain other persons
associated with the Corporation who have expressed an interest in
purchasing Common Shares in the U.S. Offering or the Canadian
Offering at the public offering price for such Shares;
"FINANCIAL INFORMATION" means the Consolidated Financial Statements
of the Corporation included in the Prospectus, together with the
reports of KPMG on such financial statements as at and for the
periods included in the Prospectus and including the notes with
respect to such financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations included
in the Prospectus;
"FINAL PROSPECTUS DATE" means the date of the Canadian Final
Prospectus, being the date of this Agreement;
<PAGE>
-4-
"FIRM SHARES" means the Canadian Firm Shares together with the U.S.
Firm Shares;
"FIRST TIME OF DELIVERY" means the time and date of delivery of the
Firm Shares and the closing of the sale and purchase thereof, that
being -, Toronto time, on -, 2000 or such other time and date as the
Representatives and the Corporation may agree upon in writing;
"INDEMNIFIED PARTY" has the meaning given to it in Section 12.3
hereof;
"INDEMNIFYING PARTY" has the meaning given to it in Section 12.3
hereof;
"KPMG" means KPMG LLP, the auditors of the Corporation;
"MATERIAL ADVERSE EFFECT" has the meaning given to it in Section
2.3(a) hereof;
"NASDAQ" means The Nasdaq Stock Market;
"NOTICE" has the meaning given to it in Section 14.5 hereof;
"OBCA" means the BUSINESS CORPORATIONS ACT (Ontario);
"PREP EXEMPTION ORDERS" means the exemption orders or rulings issued
by the Canadian Securities Regulators permitting the Corporation to
use the PREP Procedures in connection with the distribution of
Shares in Canada;
"PREP INFORMATION" means the information, if any, included in the
Canadian Pricing Prospectus that is omitted from the Canadian Final
Prospectus in accordance with the PREP Procedures and the PREP
Exemption Orders but that is deemed under the PREP Procedures and the
PREP Exemption Orders to be incorporated by reference into the Canadian
Final Prospectus as of the date of the Canadian Pricing Prospectus;
"PREP PROCEDURES" means the rules and procedures established pursuant
to the Canadian Securities Laws for the pricing of securities after the
final receipt for a prospectus has been obtained;
"PROSPECTUS" means, collectively, the Canadian Preliminary Prospectus,
the Canadian Final Prospectus and the U.S. Prospectus and any
Prospectus Amendment;
"PROSPECTUS AMENDMENT" means any amendment or supplement to the
Canadian Final Prospectus or the U.S. Final Prospectus, including the
Canadian Pricing Prospectus, or any amended and restated Canadian
Final Prospectus or U.S. Final Prospectus;
"PURCHASE PRICE" means the amount of Cdn. $- per Common Share, being
the equivalent of the purchase price for Shares sold in the U.S. based
on the noon buying rate in New York City for cable transfers in
Canadian dollars as of the date of the Canadian Pricing Prospectus;
<PAGE>
-5-
"QUALIFYING PROVINCES" means each of the provinces of Canada;
"SEC" means the United States Securities and Exchange Commission;
"SECOND TIME OF DELIVERY" means the time and date of delivery of the
Additional Canadian Shares and the closing of the sale and purchase
thereof, that being 8:30 a.m., Toronto time, on the date specified by
the Canadian Representative in the written notice given by it of the
Canadian Underwriters' election to purchase such Additional Canadian
Shares, or such other time and date as they and the Corporation may
agree upon in writing;
"SHARES" means the Canadian Shares together with the U.S. Shares;
"TIME OF DELIVERY" means the First Time of Delivery or the Second Time
of Delivery (or 8:30 a.m. on any other date specified by the Canadian
Representative in the written notice given by it of the Canadian
Underwriters' election to purchase Additional Canadian Shares), as the
case may be;
"TRUST COMPANY" means Montreal Trust at its principal office in
Toronto, Ontario;
"TSE" means The Toronto Stock Exchange;
"UNDERWRITERS' CANADIAN COUNSEL" means the law firm of Osler, Hoskin &
Harcourt LLP;
"UNDERWRITERS' U.S. COUNSEL" means the law firm of Shearman & Sterling;
"UNDERWRITING FEE" means the amount of Cdn. $- per Share being the
equivalent of the underwriting fee for Shares sold in the U.S. based
on noon buying rate in New York City for cable transfers in Canadian
dollars as of the date of the Canadian Pricing Prospectus;
"U.S. FINAL PROSPECTUS" means the final prospectus forming part of the
U.S. Registration Statement;
"U.S. FIRM SHARES" has the meaning given to such term above;
"U.S. OFFERING" has the meaning given to such term above;
"U.S. PRELIMINARY PROSPECTUS" means any preliminary prospectus
included in the U.S. Registration Statement filed with the SEC
pursuant to the 1933 Act;
"U.S. PROSPECTUS" means the prospectus relating to the U.S. Shares
included in the U.S. Registration Statement;
"U.S. REGISTRATION STATEMENT" means the registration statement on Form
F-1 relating to the registration of the Shares for distribution in the
United States and filed with the SEC pursuant to the 1933 Act, prepared
in compliance with U.S. Securities Laws, including all
<PAGE>
-6-
exhibits thereto and the information contained in the form of final
prospectus filed with the SEC and deemed to be part of the
registration statement at the time it was declared effective, and each
such part of a registration statement as amended as at the time such
part became effective;
"U.S. SECURITIES LAWS" means all applicable securities legislation in
the United States, including without limitation the 1933 Act and the
1934 Act and the rules and regulations promulgated thereunder;
"U.S. SHARES" has the meaning given to such term above;
"U.S. SUBSIDIARY" means 724 Solutions Corp., a corporation
incorporated under the laws of the State of Delaware;
"U.S. UNDERWRITERS" has the meaning given to such term above and "U.S.
UNDERWRITER" means any one of them; and
"U.S. UNDERWRITING AGREEMENT" has the meaning given to such term above.
Unless otherwise expressly provided in this Agreement, words importing
only the singular number include the plural and vice versa and words importing
gender include all genders.
ARTICLE 2
TERMS AND CONDITIONS
2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE CORPORATION
The Corporation represents and warrants to, and agrees with, each of the
Canadian Underwriters that:
2.2 COMPLIANCE WITH SECURITIES LAWS
(a) The Corporation shall fulfil and comply with, to the reasonable
satisfaction of the Canadian Underwriters, all Canadian
Securities Laws required to be fulfilled or complied with by the
Corporation to enable the Canadian Shares to be lawfully
distributed in the Qualifying Provinces through such of the
Canadian Underwriters as are duly registered to effect such
distribution, or any other investment dealers or brokers
registered as such in the Qualifying Provinces (or pursuant to
exemptions from the registration requirements of the Canadian
Securities Laws of such provinces). These requirements shall
include, without limitation, the filing of an English language
version and French language version of the Canadian Final
Prospectus, as appropriate, and the required related documents
with the Canadian Securities Regulators and obtaining a receipt
or similar corresponding document in respect thereof. Such
requirements shall be fulfilled within the times specified in
Section 5.7 hereof.
<PAGE>
-7-
(b) Until the distribution of the Shares shall have been completed,
the Corporation shall promptly take or cause to be taken all
additional steps and proceedings that from time to time may be
required under the Canadian Securities Laws to continue to
qualify the Shares for distribution in the Qualifying Provinces,
or in the event that the Shares have, for any reason, ceased to
so qualify, to again so qualify the Shares.
(c) All information and statements contained in the Canadian
Preliminary Prospectus, the Canadian Final Prospectus and any
Prospectus Amendment are true and correct in all material
respects and contain no misrepresentation and constitute full,
true and plain disclosure of all material facts relating to the
Corporation and the Canadian Shares, no material fact or
information has been omitted from such disclosure which is
required to be stated in such disclosure or is necessary to make
the statements or information contained in such disclosure not
misleading in light of the circumstances under which they were
made, and such documents comply fully with the requirements of
the Canadian Securities Laws.
(d) the Corporation (A) has obtained the PREP Exemption Orders; (B)
will have prepared and filed with the Canadian Securities
Regulators the Canadian Final Prospectus omitting the PREP
Information; and (C) will prepare and file the Canadian Pricing
Prospectus, promptly after pricing of the Shares, with each of
the Canadian Securities Regulators.
(e) The U.S. Registration Statement has either (i) become effective
under the 1933 Act and is not proposed to be amended, or (ii) is
proposed to be amended by amendment or post-effective amendment,
and the Corporation will comply with the terms of the U.S.
Underwriting Agreement to effect such amendment. No stop order
suspending the effectiveness of the U.S. Registration Statement
is in effect, and no proceedings for such purpose are pending
before or threatened by the SEC.
(f) (i) On the effective date of the U.S. Registration Statement,
it did not or will not contain and, as amended or
supplemented, if applicable, will not contain any 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, (ii) the U.S. Registration
Statement and the U.S. Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material
respects with the 1933 Act and the applicable rules and
regulations of the SEC thereunder and (iii) the Prospectus
does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do
not apply to statements or omissions in the U.S. Registration
Statement or the Prospectus based upon information relating to
any Canadian Underwriter furnished to the Corporation in
writing by such Canadian Underwriter expressly for use therein.
<PAGE>
-8-
(g) The financial statements included in the U.S. Registration
Statement and the Prospectus present fairly the financial
position of the Corporation and its consolidated subsidiaries as
of the dates indicated and their results of operations and cash
flows for the periods specified, and except as otherwise
disclosed in the Prospectus such financial statements have been
prepared in conformity with Canadian GAAP, applied on a
consistent basis, and the supporting schedules included in the
U.S. Registration Statement present fairly the information stated
therein. The assumptions used in preparing the pro forma
financial statements included in the U.S. Registration Statement
and the Prospectus provide a reasonable basis for presenting the
significant effects directly attributable to the transactions or
events described therein; the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma
columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement
amounts.
(h) Neither the issue and sale of the Shares to the Canadian
Underwriters and the U.S. Underwriters by the Corporation
pursuant to this Agreement, nor the compliance by the Corporation
with the other provisions of this Agreement and the U.S.
Underwriting Agreement and the consummation of the other
transactions contemplated by such agreements require the consent,
approval, authorization, registration, filing or qualification
under Canadian Securities Laws of or with any other governmental
authority except: (i) the filing of the Canadian Final Prospectus
with the Canadian Securities Regulators and obtaining receipts
with respect thereto and the filing of the Canadian Pricing
Prospectus; (ii) such as have been obtained or such as may be
required under state securities or Blue Sky laws of the states of
the United States of America; and (iii) such as have been
obtained under the 1933 Act and the 1934 Act.
2.3 CORPORATE MATTERS
(a) The Corporation has been duly incorporated and is an existing
corporation under the laws of Ontario, with the corporate power
and authority to own its property and conduct its business as
described in the Prospectus and is duly registered or qualified
to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing
of property requires such registration or qualification, except
where failure to be so registered or qualified would not have a
material adverse effect on the business or results of operations
of the Corporation and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(b) Each subsidiary of the Corporation has been duly incorporated and
is an existing corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and authority
to own its property and conduct its business and is duly
registered or qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
registration or qualification, except to the extent that the
<PAGE>
-9-
failure to be so registered or qualified or in good standing
would not have a Material Adverse Effect. All of the issued and
outstanding shares of each subsidiary of the Corporation has been
duly authorized and validly issued and is fully paid and
non-assessable, and the shares of each subsidiary owned by the
Corporation, directly or indirectly, are owned free and clear of
all liens, encumbrances, defects, or adverse claims or charges of
any type whatsoever.
(c) The Common Shares outstanding prior to the issuance of the Shares
have been duly authorized, validly issued and are fully paid and
non-assessable and conform, in all material respects to the
description of such shares in the Prospectus. There are no
outstanding securities convertible into or exchangeable for, or
warrants, rights or options to purchase from the Corporation, or
obligations of the Corporation to issue, any Common Shares or any
other class of shares in the capital of the Corporation, except
as set forth in the Prospectus.
(d) The Shares have been duly authorized and, when issued and
delivered and paid for in accordance with the terms of this
Agreement, will be validly issued and fully paid and
non-assessable and conform, in all material respects to the
description of such shares in the Prospectus. The issuance of the
Shares will not be subject to any pre-emptive or similar rights.
(e) Except as disclosed in the Prospectus and except for the
agreement between the Corporation and Coxwain Row Capital
Corporation dated August 18, 1999, there are no contracts,
agreements or understandings between the Corporation and any
person that would give rise to a valid claim against the
Corporation or any U.S. Underwriter or Canadian Underwriter for a
brokerage commission, finder's fee or other like payment in
connection with the Canadian Offering or the U.S. Offering.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Corporation and any
person granting such person the right to require the Corporation
to file a registration statement under the 1933 Act or to qualify
a prospectus under applicable Canadian Securities Laws with
respect to any securities of the Corporation owned or to be owned
by such person or to require the Corporation to include such
securities in the securities registered pursuant to any
registration statement filed by the Corporation under the 1933
Act or to qualify such securities under a prospectus filed under
Canadian Securities Laws.
(g) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement
or the U.S. Underwriting Agreement in connection with the
issuance and sale of the Shares by the Company, except such as
have been obtained and made under applicable Canadian Securities
Laws, the 1933 Act or the 1934, and the approval of the National
Association of Securities Dealers, Inc. with respect to its
review of the fairness of the underwriting arrangements
contemplated by this Agreement, and such as may be required
<PAGE>
-10-
under state or provincial securities laws and except for such
consents, approvals, authorizations, orders or filings the
failure of which to obtain would not have a Material Adverse
Effect.
(h) Except as disclosed in the Prospectus, under applicable laws and
regulations of Canada and any political subdivision thereof, all
dividends and other distributions declared and payable on the
Shares may be paid by the Corporation to the holder thereof in
United States dollars or Canadian dollars that may be converted
into foreign currency and freely transferred out of Canada and,
except as disclosed in the Prospectus, all such payments made to
holders thereof or therein who are non-residents of Canada will
not be subject to income, withholding or other taxes under laws
and regulations of Canada or any political subdivision or taxing
authority thereof or therein and will otherwise be free and clear
of any other tax, duty, withholding or deduction in Canada or any
political subdivision or taxing authority thereof or therein and
without the necessity of obtaining any governmental authorization
in Canada or any political subdivision or taxing authority
thereof or therein.
(i) The execution, delivery and performance of this Agreement and the
U.S. Underwriting Agreement, and the issuance and sale of the
Shares have been duly authorized by the Corporation, and this
Agreement and the U.S. Underwriting Agreement have been duly
executed and delivered by the Corporation and constitute legal,
valid and binding obligations of the Corporation enforceable
against the Corporation in accordance with its terms subject to:
(i) bankruptcy, insolvency, moratorium, reorganization and other
laws affecting enforcement of rights of creditors generally; (ii)
general principles of equity, including the qualification that
equitable remedies, including, without limitation, specific
performance and injunction, may be granted only in the discretion
of a court of competent jurisdiction; (iii) the statutory and
inherent powers of a court of competent jurisdiction to stay
proceedings before it and to grant relief from forfeiture; (iv)
the limitation that any judgment of a Canadian court for a
monetary amount will be given in Canadian currency; (v) the
limitation that the rights of indemnity, contribution and waiver
may be limited by applicable laws and (vi) judicial application
of foreign laws or foreign governmental actions affecting
creditors' rights.
(j) The execution, delivery and the performance of this Agreement and
the U.S. Underwriting Agreement will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under (i) any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Corporation or any subsidiary of the
Corporation or any of their properties, or any provision of the
articles or by-laws of the Corporation, (ii) any material
agreement or other instrument binding on the Corporation or any
of its subsidiaries or to which the properties of the Corporation
or any such subsidiary is subject, except as would not have a
Material
<PAGE>
-11-
Adverse Effect. The Corporation has the power and authority to
authorize, issue and sell the Shares as contemplated by this
Agreement and the U.S. Underwriting Agreement.
(k) The registrar and transfer agent of the Canadian Shares of the
Corporation is Montreal Trust Company at its principal transfer
office in the city of Toronto.
(l) The form of certificate representing the Common Shares has been
approved by the Corporation and complies with the provisions of
the OBCA and the requirements of the TSE.
(m) The TSE and the Nasdaq have conditionally approved the listing
and posting for trading of the Common Shares, subject to the
Corporation fulfilling all of the requirements of each of the TSE
and the Nasdaq.
2.4 NO MATERIAL ADVERSE CHANGES; CERTAIN OTHER MATTERS
(a) Except as disclosed in the Prospectus, since the date of the last
audited financial statements included in the Prospectus there has
been no material adverse change, nor, to the Corporation's
knowledge, any development or event involving a prospective
material adverse change in the condition (financial or
otherwise), business, properties or results of operations of the
Corporation and its subsidiaries, taken as a whole, and except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by
the Corporation on any class of shares.
(b) There are no current or pending actions, suits or proceedings
against or, to Corporation's or knowledge, affecting the
Corporation, any of its subsidiaries or to any of their
respective properties that, if determined adversely to the
Corporation or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect, or would materially
and adversely affect the ability of the Corporation to perform
its obligations under this Agreement or the U.S. Underwriting
Agreement, or which are otherwise material in the context of the
sale of the Shares; and no such actions, suits or proceedings are
threatened or, to the Corporation's knowledge, threatened.
(c) The Corporation is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an
"investment company" as such term is defined in the U.S.
Investment Company Act of 1940, as amended.
(d) Subsequent to the respective dates as of which information is
given in the U.S. Registration Statement and the Prospectus, the
Corporation and its subsidiaries have not incurred any material
liability or obligation, direct or contingent, nor entered into
any material transaction not in the ordinary course of business.
<PAGE>
-12-
(e) Except as disclosed in the Prospectus, the Corporation and its
subsidiaries have good and marketable title in fee simple to all
real property all other properties and assets owned by them, in
each case free and clear of all liens, encumbrances and defects
of title that would materially affect the value thereof or
materially interfere with the use made or to be made by them, and
any real property and buildings held under lease by the
Corporation and its subsidiaries are held by them under valid,
subsisting and enforceable leases, with no exceptions that would
materially interfere with the use made or to be made thereof by
them.
(f) Except as disclosed in the Prospectus, the Corporation and its
subsidiaries own or possess, or can acquire on reasonable terms,
trademarks, trade names and other rights to inventions, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
patents, patent rights, and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures
necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of
infringement of or conflict with asserted rights of others with
respect to any of the foregoing that, if determined adversely to
the Corporation or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect. The discoveries,
inventions, products or processes of the Corporation do not, to
the Corporation's knowledge, infringe or conflict with any
intellectual property right of any third party, where such
infringement or conflict could have a Material Adverse Effect.
(g) No labour dispute with the employees of the Corporation or any
subsidiary exists, or, to the knowledge of the Corporation, is
imminent, that might have a Material Adverse Effect.
(h) The Corporation and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as
is adequate for the conduct of their respective businesses and
the value of their respective properties.
(i) The Corporation and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
provincial, state or foreign regulatory authorities necessary to
conduct the businesses now operated by them, except for such
certificates, authorizations or permits the failure of which to
possess would not have a Material Adverse Effect, and have not
received notice of any proceedings relating to the revocation or
modification of any such certificate, authorization or permit
that, if determined adversely to the Corporation or any of its
subsidiaries, would individually or in the aggregate have a
Material Adverse Effect.
(j) The Corporation and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; and (ii)
transactions are recorded as necessary to permit preparation of
financial
<PAGE>
-13-
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets.
(k) Neither the Corporation nor any of its affiliates does business
with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes and the Corporation agrees to comply with such section
if prior to the completion of the distribution of Shares it
commences doing such business.
(l) (i) the U.S. Registration Statement and the Prospectus comply,
and any further amendments or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions
in which the Prospectus as amended or supplemented, if
applicable, are distributed in connection with the Directed Share
Program, and that (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any
government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities
laws and regulation of foreign jurisdictions in which the
Directed Shares are offered outside Canada and the United States.
(m) The Corporation has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or
operations of the Corporation or any of its subsidiaries will be
affected by the year 2000 problem (that is, any significant risk
that computer hardware or software applications used by the
Corporation and its subsidiaries will not, in the case of dates
or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000); as a result of such review,
the Corporation has no reason to believe, and does not believe,
that there are any issues related to the Corporation's
preparedness to address the year 2000 problem that are of a
character required to be described or referred to in the
Registration Statement or Prospectus which have not been
accurately described in the Registration Statement or Prospectus.
2.5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE CANADIAN UNDERWRITERS
(a) Each of the Canadian Underwriters, severally and not jointly,
hereby represents and warrants to, and agrees with the other
parties hereto that:
(i) during the course of distribution of the Canadian Shares
to the public by or through the Canadian Underwriters,
such Canadian Underwriters will offer the Canadian Shares
for sale to the public and will sell the Canadian Shares
only in those jurisdictions where they may be lawfully
offered for sale or sold; and
(ii) such Canadian Underwriter will offer, sell and distribute
the Canadian Shares in compliance with all applicable
Canadian Securities Laws.
<PAGE>
-14-
(b) The Canadian Underwriters covenant and agree that they shall
offer the Canadian Shares for sale to the public in the
Qualifying Provinces in compliance with applicable laws. For the
purposes of this subparagraph 2.5(b), the Canadian Underwriters
shall be entitled to assume that Shares are qualified for
distribution in those Qualifying Provinces in which a receipt or
similar document for the Prospectus shall have been obtained from
the applicable Canadian Securities Regulator following the filing
of the Canadian Final Prospectus, as supplemented by the PREP
Information.
(c) The Canadian Underwriters covenant and agree that if they
offer to sell or sell any Shares in jurisdictions other than
the Qualifying Provinces, such offers or sales shall be
effected in compliance with the applicable laws of such
jurisdictions.
ARTICLE 3
PURCHASE AND SALE OF CANADIAN SHARES.
3.1 PURCHASE OF CANADIAN FIRM SHARES
Subject to the terms and conditions herein set forth, the Corporation agrees to
issue and sell to each of the Canadian Underwriters, and each of the Canadian
Underwriters agrees, severally and not jointly, to purchase from the
Corporation, at the Purchase Price per Common Share, the number of Canadian Firm
Shares set forth opposite the name of such Canadian Underwriter in Schedule I
hereto.
3.2 GRANT OF RIGHT TO PURCHASE ADDITIONAL CANADIAN SHARES
The Corporation hereby grants to the Underwriters the right to purchase at their
election up to - Additional Canadian Shares at the Purchase Price for the sole
purpose of covering over-allotments in the sale of the Canadian Firm Shares. Any
such election to purchase Additional Canadian Shares may be exercised only by
written notice from the Canadian Representative to the Corporation, given not
later than 30 days after the date of this Agreement and setting forth the
aggregate number of Additional Canadian Shares to be purchased and the date on
which such Additional Canadian Shares are to be delivered, as determined by the
Canadian Representative, but in no event earlier than the Closing Date or later
than ten Business Days after the date of such notice.
3.3 PURCHASE OF ADDITIONAL CANADIAN SHARES
In the event and to the extent that the Canadian Underwriters shall elect to
exercise the right to purchase Additional Canadian Shares, the Corporation
agrees to issue and sell to each of the Canadian Underwriters, and each of the
Canadian Underwriters agrees, severally and not jointly, to purchase from the
Corporation, at the Purchase Price, that portion of the number of Additional
Canadian Shares as to which such election shall have been exercised (to be
adjusted by the Canadian Underwriters so as to eliminate fractional shares) that
bears the same proportion to the total number of Additional Canadian Shares
which such Canadian Underwriter is entitled to
<PAGE>
-15-
purchase as the number of Canadian Firm Shares set forth opposite the name of
such Canadian Underwriter in Schedule I hereto bears to the total number of
Canadian Firm Shares.
ARTICLE 4
DELIVERY AND PAYMENT
4.1 DELIVERY OF CANADIAN SHARES
(a) The purchase and sale of the Canadian Firm Shares shall be
completed at the First Time of Delivery, and the completion of
the purchase and sale of any Canadian Additional Shares shall be
completed on the Second Time of Delivery or on the date specified
in the written notice provided to the Corporation pursuant to
Section 3.2. At the First Time of Delivery: (i) the Corporation
shall deliver to the Canadian Underwriters a definitive share
certificate representing the Canadian Firm Shares, registered in
the name of the Canadian Representative or in such other name or
names as the Canadian Underwriters may notify the Corporation in
writing not less than the day that is the Business Day prior to
such time, (ii) the Canadian Underwriters shall deliver by
certified cheque, bank draft or wire transfer to the Corporation
the aggregate Purchase Price for the Canadian Firm Shares and a
receipt signed by the Canadian Representative for the definitive
certificate delivered to the Canadian Underwriters; and (iii) the
Corporation shall deliver by certified cheque, bank draft, or
wire transfer payable to Canadian Representative, on behalf of
the Underwriters, the Underwriting Fee for the Canadian Firm
Shares.
(b) On any closing date with respect to the purchase and sale of any
Canadian Additional Shares: (i) the Corporation shall deliver to
the Canadian Underwriters a definitive share certificate
representing the number of Canadian Additional Shares being
purchased, registered in the name of the Canadian Representative
or in such other name or names as the Canadian Underwriters may
notify the Corporation in writing not less than the day that is
the Business Day prior to such exercise date, (ii) the Canadian
Underwriters shall deliver by certified cheque, bank draft or
wire transfer payable to the Corporation, the aggregate Purchase
Price for the applicable number of Additional Canadian Shares
together with a receipt signed by the Canadian Representative for
the definitive certificate representing such Additional Canadian
Shares, and (iii) the Corporation shall deliver by certified
cheque, bank draft, or wire transfer payable to the Canadian
Representative, on behalf of the Canadian Underwriters, the
Underwriting Fee for the Additional Canadian Shares purchased as
of such date.
(c) The Corporation shall, prior to the Closing Date or any date of
closing for the issuance of Additional Canadian Shares, make all
necessary arrangements for the exchange of the definitive
certificate representing the Shares, on the delivery date at the
principal offices of Montreal Trust Company in the City of
Toronto for certificates representing such number of Shares
registered in such names as shall be designated by the Canadian
Underwriters not less than 48 hours prior to the
<PAGE>
-16-
Closing Time. The Corporation shall pay all fees and expenses
payable to Montreal Trust Company in connection with the
preparation, delivery, certification and exchange of the Shares
and the fees and expenses payable to Montreal Trust Company in
connection with the initial or additional transfers as may be
required in the course of the distribution of the Shares.
4.2 PAYMENT OF UNDERWRITING FEE
As compensation to the Canadian Underwriters for their services hereunder, the
Corporation at each Time of Delivery will pay to -, for the accounts of the
Canadian Underwriters, the Underwriting Fee per Common Share in respect of the
Canadian Shares to be delivered by the Corporation hereunder at such Time of
Delivery. At each Time of Delivery, the Corporation will pay, or cause to be
paid, the aggregate Underwriting Fee payable at such Time of Delivery to the
Canadian Underwriters by certified or official bank cheque or cheques, payable
to the order of the Canadian Representatives, or by wire transfer, in same day
funds.
4.3 PLACE OF DELIVERY
The documents to be delivered at each Time of Delivery by or on behalf of the
parties hereto pursuant to this Article 4 and pursuant to Article 9 hereof,
including the receipts for the Canadian Shares and any additional documents
requested by the Canadian Underwriters pursuant to Section 9.1 hereof, will be
delivered at the offices of in each case at the offices of Goodman Phillips &
Vineberg, 250 Yonge Street, Suite 2400, Toronto, Ontario or at such other place
as the Canadian Underwriters and the Corporation may agree upon.
ARTICLE 5
FURTHER AGREEMENTS OF THE CORPORATION
The Corporation agrees with each of the Canadian Underwriters that:
5.1 FURTHER ACTIONS TO QUALIFY SHARES
The Corporation will promptly from time to time take such further action as the
Canadian Underwriters may reasonably request to qualify the Shares for offering
and sale under the securities laws of such jurisdictions of Canada and the
United States as the Canadian Underwriters may reasonably request and to comply
with such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the distribution
of the Shares.
5.2 NOTIFICATION TO UNDERWRITERS
The Corporation will advise the Canadian Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of: (i) the time when any amendment or
supplement to the Canadian Final Prospectus or U.S. Registration Statement has
been filed or becomes effective; (ii) the issuance by any Canadian Securities
Regulator or by the SEC of any cease trade order, stop order or any other order
preventing or suspending the trading of the Shares or the
<PAGE>
-17-
effectiveness of the U.S. Registration Statement or any amendment thereto or any
order preventing or suspending the use of the Canadian Final Prospectus, the
U.S. Final Prospectus or any amendment or supplement thereto; (iii) any request
made by a Canadian Securities Regulator or by the SEC for amending the
Prospectus or the U.S. Registration Statement, or for additional information;
(iv) the suspension of the qualification of the Shares for offering or sale in
any jurisdiction; or (v) the institution, threatening or contemplation of any
proceeding for any such purpose. The Corporation will use its best efforts to
prevent the issuance of any such order and, if any such order is issued, to
obtain the withdrawal thereof as promptly as possible.
5.3 RESTRICTION ON OTHER SALES
The Corporation shall not, without the prior written consent of the U.S.
Representative, during the period ending 180 days after the date of the Time of
First Delivery, (i) offer, issue, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any Common Shares or any securities convertible into
or exercisable or exchangeable for Common Shares, or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Shares. The foregoing sentence
shall not apply to: (a) the U.S. Shares to be sold under the U.S. Underwriting
Agreement or the Canadian Shares to be sold hereunder; (b) the issuance by the
Corporation of Common Shares pursuant to exercise of warrants or options, in
each case outstanding on the date of hereof, grants of employee stock options
pursuant to the terms of a plan in effect on the date hereof, and issuances of
Shares pursuant to the exercise of such options. Notwithstanding the foregoing,
the Corporation may file a registration statement on Form S-8 (or any successor
form) to register its Common Shares that are reserved for issuance under its
share option plans, and may issue shares in any bona fide acquisition
transaction involving the purchase of any company, business or technology.
5.4 RESTRICTION ON STABILIZATION AND OTHER ACTIVITIES
Neither the Corporation nor any subsidiary or other entity over which the
Corporation exercises control or significant influence, nor any of its or their
respective officers or directors, will, directly or indirectly, until the
completion of distribution: (i) take any action designed to cause or to result
in, or that constitutes or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Corporation to
facilitate the sale or resale of the Shares; (ii) sell, bid for, purchase, or
pay anyone any compensation for soliciting purchases of the Shares other than
the fees payable pursuant to the Canadian Underwriting Agreement or the U.S.
Underwriting Agreement or (iii) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Corporation.
5.5 LISTING ON STOCK EXCHANGES
The Corporation will, on or prior to the First Time of Delivery, cause the
Common Shares to be duly listed and posted for trading on the TSE and the
Nasdaq, subject to official notice of issuance.
<PAGE>
-18-
ARTICLE 6
DELIVERY OF FINAL PROSPECTUS
6.1 COMMERCIAL COPIES
The Corporation will furnish the Canadian Underwriters, without charge, with
commercial copies of the English and French language versions of the Canadian
Pricing Prospectus in such quantities and at such cities as the Canadian
Representative may from time to time reasonably request by oral instructions to
the Corporation. Such delivery shall be effected as soon as possible and, in any
event, on or before 10:00 a.m. (Toronto time) in the cities of Toronto on the
Business Day following the date of this Agreement, and on or before 10:00 a.m.
(Toronto time) on the second Business Day following the date of this Agreement
elsewhere.
6.2 PROSPECTUS AMENDMENTS
The Corporation shall prepare and deliver promptly to the Canadian Underwriters
signed and certified copies of all Prospectus Amendments required under Canadian
Securities Laws, which shall be in form and substance satisfactory to the
Canadian Underwriters and Underwriters' Canadian Counsel, acting reasonably, and
accompanied by documents corresponding to those referred to in Sections 8.1(c),
8.1(d) and 8.1(e), and the comfort letter referred to in subsection 9.1(h). The
Corporation shall promptly furnish the Canadian Underwriters, without charge,
with commercial copies of the English and French language versions of such
amendment, in such quantities and at such cities as the Canadian Representative
may from time to time reasonably request.
6.3 REPRESENTATION AS TO PROSPECTUS AND PROSPECTUS AMENDMENTS
Delivery of the Canadian Final Prospectus and any Prospectus Amendment thereto
shall constitute a representation and warranty by the Corporation to the
Canadian Underwriters that (i) all information and statements (except
information and statements relating solely to the Canadian Underwriters and
provided by the Canadian Underwriters in writing expressly for inclusion
therein) contained therein are true and correct and contain no misrepresentation
and constitute full, true and plain disclosure of all material facts; (ii) no
material fact or information has been omitted from such disclosure which is
required to be stated in such disclosure or is necessary to make the statements
or information contained in such disclosure not misleading in light of the
circumstances under which they were made; and (iii) such documents comply fully
with the requirements of Canadian Securities Laws.
ARTICLE 7
EXPENSES
7.1 PAYMENT OF EXPENSES
Whether or not the transactions contemplated in this Agreement are consummated
or this Agreement is terminated, the Corporation covenants and agrees with the
Canadian Underwriters that it will pay or cause to be paid the following:
<PAGE>
-19-
(a) the fees, disbursements and expenses of the Corporation's
Canadian Counsel, the Corporation's U.S. Counsel and KPMG in
connection with qualification by prospectus of the distribution
of the Shares under Canadian Securities Laws and the registration
and delivery of the Shares under U.S. Securities Laws and all
other fees and expenses in connection with the preparation,
printing and filing of the Prospectus and the U.S. Registration
Statement and the mailing and delivering of copies thereof to the
Underwriters and dealers;
(b) all expenses in connection with the qualification of the Shares
for offering and sale in the Qualifying Provinces and in the U.S.
and the issuance of the Shares and all fees and expenses in
connection with listing the Common Shares on the TSE and the
Nasdaq;
(c) all expenses and taxes arising as a result of the sale and
delivery of the Shares to or for the account of the Underwriters,
of the sale and delivery of the Shares by the Underwriters to
each other, and to the initial purchasers thereof in the manner
contemplated under this Agreement, including, in any such case,
any transfer or other tax asserted against any Canadian
Underwriter by reason of the purchase and sale of a Share
pursuant to this Agreement;
(d) the cost and charges of Montreal Trust Company in connection with
its services as transfer agent or registrar for the Canadian
Shares;
(e) any costs and expenses associated with "road shows" and any
meetings with prospective purchasers of the Shares, all
out-of-pocket expenses of the Underwriters and any advertising
costs relating to the offering of the Shares;
(f) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically
provided for in this Article 7.
ARTICLE 8
DELIVERIES
8.1 CONCURRENT DELIVERIES
Concurrently with the execution and delivery of this Agreement, the Corporation
shall deliver to the Canadian Underwriters:
(a) a copy of each of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Pricing Prospectus in
the English language signed and certified as required by Canadian
Securities Laws;
(b) a copy of each of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Pricing Prospectus in
the French language signed and certified as required by Canadian
Securities Laws;
<PAGE>
-20-
(c) a copy of any other document required to be filed by the
Corporation under the laws of any of the Qualifying Provinces in
compliance with Canadian Securities Laws;
(d) legal opinions dated the date of the Canadian Pricing Prospectus,
in form and substance satisfactory to the Canadian Underwriters,
acting reasonably, addressed to the Canadian Underwriters, the
Corporation, their respective counsel and the directors of the
Corporation from Quebec counsel to the effect that the French
language version of the Canadian Pricing Prospectus, except for
the Financial Information, as to which no opinion need be
expressed by such counsel, is, in all material respects, a
complete and accurate translation of the English language version
thereof, and that the English and French language versions are
not susceptible of any materially different interpretation with
respect to any material matter contained therein; and
(e) opinions dated the date of the Canadian Preliminary Prospectus
and the Final Prospectus Date or, if applicable, the date of the
Canadian Pricing Prospectus, in form and substance satisfactory
to the Canadian Underwriters, acting reasonably, addressed to the
Canadian Underwriters, the Corporation, their respective counsel
and the directors of the Corporation from KPMG to the effect that
the French language version of the Financial Information
contained in the Canadian Preliminary Prospectus, the Canadian
Final Prospectus and, if applicable, the Canadian Pricing
Prospectus is, in all material respects, a complete and proper
translation of the English language version thereof.
ARTICLE 9
CONDITIONS
9.1 CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS
The obligations of the Corporation to sell the Canadian Firm Shares to the
Canadian Underwriters and the several obligations of the Canadian Underwriters
to purchase and pay for the Canadian Firm Shares on the Closing Date are subject
to the following conditions:
(a) The Canadian Final Prospectus shall have been filed with each of
the Canadian Securities Regulators and receipts obtained therefor
and the Canadian Pricing Prospectus shall have been filed with
each of the Canadian Securities Regulators, and all other steps
or proceedings shall have been taken that may be necessary in
order to qualify the Shares for distribution to the public in
each of the Qualifying Provinces.
(b) The Canadian Representative shall have received a letter, dated
the date of delivery thereof (which, if the effective time of the
initial U.S. Registration Statement is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of
this Agreement or, if the Effective Time of the initial U.S.
Registration Statement is subsequent to the execution and
delivery of this
<PAGE>
-21-
Agreement, shall be prior to the filing of the amendment or
post-effective amendment to the registration statement to be
filed shortly prior to such Effective Time), of KPMG, confirming
that they are independent public accountants within the meaning
of the 1933 Act and the applicable published Rules and
Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the U.S. Registration
Statement comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and
the related published Rules and Regulations;
(ii) on the basis of a reading of the latest available interim
financial statements of the Corporation, inquiries of
officials of the Corporation who have responsibility for
financial and accounting matters and other specified
procedures, nothing came to their attention that caused them
to believe that:
(A) at the date of the latest available balance sheet read
by KPMG, or at a subsequent specified date not more
than three Business Days prior to the date of such
letter, there was any change in the capital stock or
any increase in short-term indebtedness or long-term
debt of the Corporation and its consolidated
subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any
decrease in consolidated net assets, as compared with
amounts shown on the latest balance sheet included in
the Prospectus;
(B) for the period from the closing date of the latest
income statement included in the Prospectus to the
closing date of the latest available income statement
read by such accountants there were any decreases, as
compared with the corresponding period of the previous
year and with the period of corresponding length ended
the date of the latest income statement included in the
Prospectus, in consolidated revenue, gross profit, or
in total or per share amounts of consolidated net
income (loss), except in all cases set forth in clause
(A) above for changes, increases or decreases which the
Prospectus disclose have occurred or may occur or which
are described in such letter;
(C) at the date of the latest available balance sheet read
by KPMG, or at a subsequent specified date not more
than three Business Days prior to the date of such
letter, there was any change in the capital stock or
any increase in short-term indebtedness or long-term
debt of the Corporation and its consolidated
subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any
decrease in consolidated net assets, as compared with
<PAGE>
-22-
amounts shown on the latest balance sheet included in
the Prospectus; or
(D) for the period from the closing date of the latest
income statement included in the Prospectus to the
closing date of the latest available income statement
read by KPMG there were any decreases, as compared with
the corresponding period of the previous year and with
the period of corresponding length ended the date of
the latest income statement included in the Prospectus,
in consolidated revenue, gross profit, or in total or
per share amounts of consolidated net income (loss),
except in all cases set forth in clauses (A), (B) and
(C) above for changes, increases or decreases which the
U.S. Registration Statement and the Prospectus disclose
have occurred or may occur or which are described in
such letter;
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the U.S. Registration
Statement (in each case to the extent that such dollar
amounts, percentages and other financial information are
derived from the general accounting records of the
Corporation and its subsidiaries subject to the internal
controls of the Corporation's accounting system or are
derived directly from such records by analysis or
computation) with the results obtained from inquiries, a
reading of such general accounting records and other
procedures specified in such letter and have found such
dollar amounts, percentages and other financial
information to be in agreement with such results, except
as otherwise specified in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the U.S. Registration
Statement (in each case to the extent that such dollar
amounts, percentages and other financial information are
derived from the general accounting records of the
Corporation and its subsidiaries subject to the internal
controls of the Corporation's accounting system or are
derived directly from such records by analysis or
computation) with the results obtained from inquiries, a
reading of such general amounts, percentages and other
financial information to be in agreement with such
results, except as otherwise specified in such letter.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have occurred any
change, or any development or event involving a prospective
change, in the condition, financial or otherwise, business,
properties or operations of the Corporation and its subsidiaries,
taken as one enterprise that is material and adverse and makes it
impractical to market the Shares on the terms and in the manner
contemplated by the Prospectus.
<PAGE>
-23-
(d) The Canadian Underwriters shall have received on the Closing Date
a certificate, dated the Closing Date and signed by an executive
officer of the Corporation, to the effect set forth in subsection
9.1(c) above and to the effect that the representations and
warranties of the Corporation contained in this Agreement are
true and correct as of the Closing Date and that the Corporation
has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on
or before the Closing Date.
(e) The Canadian Underwriters shall have received on the Closing Date
an opinion of the Corporation's Canadian Counsel, dated the
Closing Date, which counsel in turn may rely upon the opinions of
local counsel where they deem such reliance proper as to the laws
other than those of Canada or Ontario, to the effect that:
(i) the Corporation has been amalgamated and is an existing
corporation under the laws of the Province of Ontario, with
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly registered or qualified to transact business as an
extra-provincial corporation in each jurisdiction in Canada
in which the conduct of its business or ownership or leasing
of property requires such registration or qualification,
except to the extent that the failure to be so registered or
qualified or be in good standing would not have a Material
Adverse Effect;
(ii) The Shares delivered on such Closing Date and all other
outstanding Common Shares have been duly authorized and
validly issued, are fully paid and non-assessable and
conform, in all material respects, to the description
thereof contained in the Prospectus; and the shareholders of
the Corporation have no pre-emptive or similar rights
arising under (A) any Canadian or Province of Ontario
statute, rule or regulation with respect to the Securities
or (B) the articles, by-laws or agreement of the Corporation
once Common Shares have been issued pursuant to 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 Commission;
(iii) The statements in the Prospectus under the captions and
Prospectus in "Risk Factors - Our product contains
encryption technology whose export is restricted by U.S.
and Canadian Law," "Certain Transactions," "Shares
Eligible for Future Sale - Canadian Resale Restrictions
and Escrowed Securities," "Income Tax Consequences -
Canadian Federal Income Tax Considerations" are accurate
in all material respects;
(iv) The Company holds all material licenses, certificates and
permits from federal governmental authorities in Canada and
provincial authorities in the Province of Ontario which are
necessary to the conduct of its business;
<PAGE>
-24-
(v) Except for those already obtained or completed, no consent,
approval, authorization or order of, or filing with, any
governmental agency or body or any court of Canada or the
Province of Ontario is required for the consummation of the
transactions contemplated by this Agreement in connection
with the issuance or sale of the Canadian Shares by the
Corporation;
(vi) The execution, delivery and performance of this Agreement
and the U.S. Underwriting Agreement and the issuance and
sale of the Shares will not result in a breach or violation
of any of the terms and provisions of, or constitute a
default under the articles or by-laws of the Corporation,
and the Company has the corporate power and authority to
authorize, issue and sell the Shares as contemplated by this
Agreement and the U.S. Underwriting Agreement;
(vii) to the best of such counsel's knowledge, there are no legal
or governmental proceedings in Canada pending or threatened
to which the Corporation or any of its subsidiaries is a
party or to which any of the properties of the Corporation
or any of its subsidiaries is subject that are required to
be described in the Prospectus and are not so described or
of any statutes, regulations, contracts or other documents
that are required to be described in the Prospectus;
(viii) This Agreement and the U.S. Underwriting Agreement has
been duly authorized, executed and delivered by the
Corporation and constitutes a legal, valid and binding
obligation of the Corporation;
(ix) the execution and delivery by the Corporation of, and the
performance by the Corporation of its obligations under,
this Agreement will not contravene any provision of
applicable laws of the Province of Ontario or any federal
laws of Canada applicable therein or the articles of
incorporation or bylaws of the Corporation
(x) the Canadian Shares are eligible investments under the
statutes listed under "Eligibility for Investment" in the
Canadian Final Prospectus; and
(xi) all documents have been filed and all requisite proceedings
have been taken and all approvals, permits, consents and
authorizations of the appropriate regulatory authorities
under the Canadian Securities Laws has been obtained by the
Corporation to qualify the Canadian Shares for distribution
or distribution to the public in each of the Qualifying
Provinces through investment dealers or brokers registered
under the applicable laws of the Qualifying Provinces, who
have complied with the relevant provisions of such
applicable laws.
<PAGE>
-25-
(f) The Canadian Underwriters shall have received on the Closing Date
an opinion of Corporation's U.S. Counsel, dated the Closing Date,
to the effect that:
(i) except as set forth in the U.S. Registration Statement and
the Prospectus, no holders of Common Shares or other
securities have registration rights with respect to
securities of the Corporation and, except as set forth in
the U.S. Registration Statement and the Prospectus, all
holders of securities of the Corporation having rights to
registration of such Common Shares or other securities
because of the filing of the Registration Statement by the
Corporation have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the
Corporation's intent to file the U.S. Registration
Statement;
(ii) the Corporation is not, and will not become, as a result of
the consummation of the transactions contemplated by this
Agreement and the U.S. Underwriting Agreement, and the
application of the net proceeds therefrom as described in
the Prospectus, an "investment company" within the meaning
of the U.S. Investment Company Act of 1940, as amended;
(iii) No authorization, approval, consent or order of, or filing
with, any governmental authority or agency or any court is
required in connection with the transactions contemplated by
this Agreement and the U.S. Underwriting Agreement, except
such as have been obtained and made under the 1933 Act and
such as may be required under state securities laws or "Blue
Sky" laws in connection with the purchase and distribution
of the Shares by the U.S. Underwriters;
(iv) the execution and delivery of this Agreement and the U.S.
Underwriting Agreement and the performance by the
Corporation of their terms do not violate or result in a
violation of any judgment, order or decree of any court or
arbiter, to which the Corporation is a party, and to our
knowledge after reasonably investigation, will not
constitute a material breach of the terms, conditions or
provisions of or constitute a default under any contract,
undertaking, indenture or other agreement by which the
Corporation is now bound or to which it is now a party that
is described in the certificate of an officer of the
Company, a copy of which is attached to such opinion;
(v) the U.S. Registration Statement has become effective under
the 1933 Act, and no stop order suspending the effectiveness
of the U.S. Registration Statement or any part thereof has
been issued or any proceedings for that purpose have been
instituted or are pending or contemplated under the 1933
Act;
<PAGE>
-26-
(vi) this Agreement and the U.S. Underwriting Agreement have been
duly executed and delivered by the Corporation;
(vii) the U.S. Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority
to conduct its business. The U.S Subsidiary is duly
qualified to transact business as a foreign corporation in
the State of California; all of the issued and outstanding
capital stock of the U.S Subsidiary is owned by the
Corporation, and to the best of such counsel's knowledge,
free and clear of any security interest, claim, lien,
encumbrance or adverse interest;
(viii) the execution and delivery by the Corporation of, and the
performance by the Corporation of its obligations under,
this Agreement will not contravene any provision of
applicable federal law of the United States or the laws of
the State of New York;
(ix) the information in the Prospectus under the captions
"Certain Transactions," "Shares Eligible for Future
Sale--U.S. Resale Restrictions," and "Consequences - U.S.
Federal Income Tax Considerations," "Consequences - Passive
Foreign Investment Companies"; "Risk Factors - Our
Technology Contains Encryption Technology Whose Export is
Restricted by U.S. and Canadian Law" to the extent that such
information constitutes matters of law or legal conclusions
is a fair summary in all material respects of such matters
and conclusions;
(x) to such counsel's knowledge, there are no material pending
or threatened action, suit or proceeding before any court or
governmental agency, authority or body or any arbitrator
involving the Corporation, other than such actions, suits or
proceedings as are described in the Prospectus. There is no
contract or other document known to such counsel of a
character required to be described in the Prospectus or to
be filed as an exhibit to the U.S. Registration Statement
that is not described or filed as required; and
(xi) such counsel shall state that it has participated in
conferences with the Underwriters' representatives and with
representatives of the Corporation and its accountants
concerning the U.S. Registration Statement and the
Prospectus and have considered the matters required to be
stated therein and the statements contained therein,
although it has not independently verified the accuracy,
completeness or fairness of such statements, and that, based
upon and subject to the foregoing, nothing has come to such
counsel's attention that leads such counsel to believe that
the U.S. Registration Statement, at the time it became
effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein
<PAGE>
-27-
not misleading, or that the Prospectus, at the time they
were filed with the SEC pursuant to Rule 424 (b) under the
1933 Act or as of the date of such opinion, contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading (it being
understood that such counsel shall not be required to make
any comment with respect to the financial statements,
supporting schedules, footnotes, and other financial
information contained in the Registration Statement or the
Prospectus).
In rendering such opinion, Morrison & Foerster LLP may rely as to
all matters governed by Canadian law upon the opinion of Goodman
Phillips & Vineberg.
(g) The Canadian Underwriters shall have received on the Closing Date
an opinion of the Underwriters' Canadian Counsel, dated the
Closing Date, which counsel in turn may rely upon the opinions of
local counsel where they deem such reliance proper as to the laws
other than those of Canada and Ontario, covering the matters
referred to in Sections 9.1(e)(i), (ii) (but only with respect to
the Shares; (iii); (v); (vi); (viii); (ix); (x); and (xi). With
respect to Sections 9.1(d)(i); (ii); (vi) and (viii), the
Underwriters' Canadian Counsel shall be entitled to rely upon the
opinion of the Corporation's Canadian Counsel in rendering such
opinions.
(h) The Canadian Underwriters shall have received on the Closing Date
from Underwriters' U.S. Counsel such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the
Corporation, the validity of the U.S. Shares delivered on such
Closing Date, the U.S. Registration Statement, the Prospectus,
the matters set out in Section 9.1 (f) (ix) and other related
matters as the Canadian Representative may reasonably require,
and the Company shall have furnished to such counsel such
documents as they shall reasonably request for the purpose of
enabling them to pass upon such matters. In rendering such
opinion, Underwriters' U.S. Counsel may rely on all matters
governed by Canadian law upon the opinion of Underwriters'
Canadian Counsel referred to above
(i) The Canadian Underwriters shall have received, on each of the
date hereof and the Closing Date, letters dated the date hereof
in form and substance satisfactory to the Canadian Underwriters,
from KPMG, independent public accountants, containing statements
and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the
U.S. Registration Statement and the Prospectus.
(j) The U.S Representative shall have received the "lock-up"
agreements, each substantially in the form attached to the U.S.
Underwriting Agreement, from the holders of all of the
Corporation's outstanding Shares, and all securities convertible
into or exercisable or exchangeable for Shares.
<PAGE>
-28-
(k) The Shares shall have been conditionally approved for listing on
the TSE and the Nasdaq, subject to the Corporation fulfilling all
the requirements of such exchanges.
(l) Contemporaneously with the purchase by the Canadian Underwriters
of the Canadian Firm Shares under this Agreement (or the Canadian
Additional Shares, as the case may be), the U.S. Underwriters
shall have purchased the U.S. Firm Shares under the U.S.
Underwriting Agreement (or the U.S. Additional Shares, as the
case may be).
(m) On or before the Closing Date, the Canadian Underwriters shall
have received such further certificates, documents, opinions, and
other information as they may have reasonably requested.
(n) The several obligations of the Canadian Underwriters to purchase
Additional Canadian Shares hereunder are subject to the delivery
to the Canadian Representative at the Time of Delivery of such
documents as they may reasonably request with respect to the good
standing of the Corporation, the due authorization and issuance
of the Additional Shares and other matters related to the
issuance of the Additional Canadian Shares.
ARTICLE 10
RIGHTS OF TERMINATION
10.1 LITIGATION
If any enquiry, action, suit, investigation or other proceeding, whether formal
or informal, is instituted or threatened or any order is made by any Canadian or
U.S. federal, provincial, state or other governmental authority in relation to
the Corporation, which, in the reasonable opinion of any of the Canadian
Underwriters, operates to prevent or restrict the distribution or trading of the
Shares, any of the Canadian Underwriters shall be entitled, at their option and
in accordance with Section 10.5, to terminate their obligations under this
Agreement by notice to that effect given to the Corporation any time prior to
the First Time of Delivery.
10.2 MARKET OUT CLAUSE
If prior to the First Time of Delivery:
(a) there should develop, occur or come into effect or existence any
event, action, state, condition or major financial occurrence of
national or international consequence or any law or regulation,
which, in the opinion of any of the Canadian Underwriters,
seriously adversely affects or involves or will seriously
adversely affect or involve, the financial markets or the
business, operations or affairs of the Corporation and its
subsidiaries on a consolidated basis; or
<PAGE>
-29-
(b) the state of the financial markets in Canada or elsewhere where
it is planned to market the Canadian Shares is such that, in the
reasonable opinion of any of the Canadian Underwriters, the
Canadian Shares cannot be profitably marketed,
any of the Canadian Underwriters shall be entitled at their option, in
accordance with paragraph 10.5, to terminate their obligations under this
Agreement by written notice to that effect given to the Corporation prior to the
First Time of Delivery.
10.3 MATERIAL CHANGE
If prior to the First Time of Delivery there shall occur any material change or
a change in any material fact, which in the opinion of any of the Canadian
Underwriters, would be expected to have a significant adverse effect on the
market price or value of the Shares, any of the Canadian Underwriters shall be
entitled, at its option, in accordance with Section 10.5, to terminate its
obligations under this Agreement by written notice to that effect given to the
Corporation at or prior to the First Time of Delivery.
10.4 NON-COMPLIANCE WITH CONDITIONS
The Corporation agrees that all terms and conditions in Article 9 shall be
construed as conditions and complied with so far as they relate to acts to be
performed or caused to be performed by it, that it will use its reasonable best
efforts to cause such conditions to be complied with, and that any breach or
failure by the Corporation to comply with any such conditions shall entitle the
Canadian Representative on behalf of the Canadian Underwriters to terminate its
obligations to purchase the Shares by notice to that effect given to the
Corporation at or prior to the First Time of Delivery, unless otherwise
expressly provided in this Agreement. The Canadian Underwriters may waive, in
whole or in part, or extend the time for compliance with, any terms and
conditions without prejudice to their rights in respect of any other terms and
conditions or any other or subsequent breach or non-compliance, provided that
any such waiver or extension shall be binding upon the Canadian Underwriters
only if such waiver or extension is in writing and signed by all of the Canadian
Underwriters.
10.5 EXERCISE OF TERMINATION RIGHTS
The rights of termination contained in Sections 10.1, 10.2, 10.3 and 10.4 may be
exercised by any of the Canadian Underwriters and are in addition to any other
rights or remedies any of the Canadian Underwriters may have in respect of any
default, act or failure to act or non-compliance by the Corporation in respect
of any of the matters contemplated by this Agreement or otherwise. In the event
of any such termination, there shall be no further liability on the part of the
Canadian Underwriters so terminating to the Corporation or on the part of the
Corporation to such Canadian Underwriters except in respect of any liability
which may have arisen prior to or arise after such termination under Sections
7.1, 12.1 and 13.1. Subject to Section 14.1, a notice of termination given by
any Canadian Underwriter under Section 10.1, 10.2, 10.3 or 10.4 shall not be
binding upon any other Canadian Underwriter. Nothing in this Agreement shall
require the Corporation to sell less than all of the Shares.
<PAGE>
-30-
ARTICLE 11
MATERIAL CHANGE
11.1 MATERIAL CHANGE DURING DISTRIBUTION
During the period of distribution of the Shares under the Prospectus, the
Corporation shall promptly notify the Canadian Underwriters in writing of:
(a) any material change (actual, anticipated, contemplated or
threatened, financial or otherwise) in the business, affairs,
operations, assets, liabilities (contingent or otherwise) or
capital of the Corporation and its subsidiary taken as a whole;
(b) any material fact which has arisen or has been discovered and
would have been required to have been stated in the Canadian
Final Prospectus or the U.S. Final Prospectus had the fact arisen
or been discovered on, or prior to, the Final Prospectus Date;
and
(c) any change in any material fact contained in the Canadian Final
Prospectus or any Prospectus Amendment which change is, or may
be, of such a nature as to render any statement in the Canadian
Final Prospectus or the U.S. Final Prospectus or any Prospectus
Amendment misleading or untrue or which would result in a
misrepresentation in the Canadian Final Prospectus or the U.S.
Final Prospectus or any Prospectus Amendment or which would
result in the Canadian Final Prospectus or the U.S. Final
Prospectus or any Prospectus Amendment not complying (to the
extent that such compliance is required) with Canadian Securities
Laws or U.S. Securities Laws, as applicable.
The Corporation shall promptly, and in any event within any applicable time
limitation, comply, to the satisfaction of the Canadian Underwriters, acting
reasonably, with all applicable filings and other requirements under Canadian
Securities Laws and U.S. Securities Laws as a result of such fact or change;
provided that the Corporation shall not file any Prospectus Amendment or other
document without first obtaining the approval of the Canadian Representative on
behalf of the Canadian Underwriters, which approval will not be unreasonably
withheld. The Corporation shall in good faith discuss with the Canadian
Underwriters any fact or change in circumstances (actual, anticipated,
contemplated or threatened, financial or otherwise) which is of such a nature
that there is reasonable doubt whether written notice need be given under this
Article 11; and
11.2 CHANGE IN THE CANADIAN SECURITIES LAWS
If during the period of distribution of the Shares there shall be any change in
the Canadian Securities Laws which, in the opinion of the Canadian Underwriters,
requires the filing of a Prospectus Amendment, the Corporation shall, to the
satisfaction of the Canadian Underwriters, acting reasonably, promptly prepare
and file such Prospectus Amendment with the appropriate Canadian Securities
Regulators in each of the Qualifying Provinces where such filing is required and
with the SEC, as appropriate.
<PAGE>
-31-
ARTICLE 12
INDEMNITY
12.1 INDEMNIFICATION OF THE CANADIAN UNDERWRITERS
The Corporation agrees to indemnify and save harmless each of the Canadian
Underwriters and each of their respective affiliates, directors, officers,
employees and agents from and against all joint or several liabilities, claims,
losses (other than loss of profits), reasonable costs, damages and reasonable
expenses (including without limitation any legal fees or other expenses
reasonably incurred by any Canadian Underwriter in connection with defending or
investigating any such action or claim, and will reimburse each Canadian
Underwriter for any legal or other expenses reasonably incurred by such Canadian
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred) in any way caused by, or arising directly
or indirectly from, or in consequence of:
(a) any information or statement (except any statement relating
solely to the Canadian Underwriters and provided by or on behalf
of the Canadian Underwriters expressly for use therein) contained
in the Prospectus or the U.S. Registration Statement or in any
certificate of the Corporation delivered pursuant to this
Agreement which, at the time and in the light of the
circumstances under which it was made, contains or is alleged to
contain a misrepresentation;
(b) any omission or alleged omission to state in the Prospectus or
the U.S. Registration Statement any material fact (except facts
omitted on the basis of information or statements relating solely
to the Canadian Underwriters and provided by or on behalf of the
Canadian Underwriters expressly for such purpose) required to be
stated in such document or necessary to make any statement in
such document not misleading in light of the circumstances under
which it was made;
(c) any order made or enquiry, investigation or proceedings commenced
or threatened by any securities commission or other competent
authority based upon any untrue statement or omission or alleged
untrue statement or alleged omission or any misrepresentation or
alleged misrepresentation (except a statement or omission or
alleged statement or omission regarding facts relating solely to
the Canadian Underwriters and provided by or on behalf of the
Canadian Underwriters expressly for use therein) in the
Prospectus or the U.S. Registration Statement or based upon any
failure to comply with the Canadian Securities Laws or the U.S.
Securities Laws (other than any failure or alleged failure to
comply by the Canadian Underwriters), preventing or restricting
the trading in or the sale or distribution of the Shares in any
of the Qualifying Provinces or the United States; or
(d) the non-compliance or alleged non-compliance by the Corporation
with any of the Canadian Securities Laws or U.S. Securities Laws
including the Corporation's
<PAGE>
-32-
non-compliance with any statutory requirement to make any
document available for inspection.
12.2 INDEMNIFICATION OF THE CORPORATION
Each Canadian Underwriter agrees, severally and not jointly, to indemnify and
save harmless the Corporation and each of its directors, officers, employees and
agents from and against all joint or several liabilities, claims, losses (other
than loss of profits), reasonable costs, damages and reasonable expenses
(including without limitation any legal fees or other expenses reasonably
incurred by the Corporation in connection with defending or investigating any
such action or claim, and will reimburse the Corporation for any legal or other
expenses reasonably incurred by such Canadian Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred) in any way caused by, or arising directly or indirectly from, or in
consequence of any statement relating solely to the Canadian Underwriters and
provided by or on behalf of the Canadian Underwriters in writing expressly for
use therein contained in the Prospectus or the U.S. Registration Statement
which, at the time and in the light of the circumstances under which it was
made, contains or is alleged to contain a misrepresentation.
12.3 NOTIFICATION OF CLAIMS
If any matter or thing contemplated by Section 12.1 or 12.2 (any such matter or
thing being referred to as a "Claim") is asserted against any person or company
in respect of which indemnification is or might reasonably be considered to be
provided, such person or company (the "Indemnified Party") will notify the party
from which indemnification is being sought (the "Indemnifying Party") as soon as
possible of the nature of such Claim (but the failure so to notify the
Indemnifying Party of any potential Claim shall not relieve the Indemnifying
Party from any liability which it may have to any Indemnified Party and any
omission to so notify the Indemnifying Party of any actual claim shall affect
the Indemnifying Party's liability only to the extent that it is materially
prejudiced by that failure). The Indemnifying Party shall be entitled to
participate in and, to the extent that it shall wish, to assume the defence of
any suit brought to enforce such Claim; provided, however, that the defence
shall be conducted through legal counsel reasonably acceptable to the
Indemnified Party, that no settlement of any such Claim or admission of
liability may be made by the Indemnifying Party or the Indemnified Party without
the prior written consent of the other parties, acting reasonably, and the
Indemnifying Party shall not be liable for any settlement of any such Claim
unless it has consented in writing to such settlement or unless such settlement,
compromise or judgment (a) includes an unconditional release of the Indemnified
Party and the Indemnifying Party from all liability arising out of such action
or claim and (b) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any Indemnified Party or the
Indemnifying Party.
12.4 RIGHT OF INDEMNITY IN FAVOUR OF OTHERS
With respect to any Indemnified Party who is not a party to this Agreement, the
Indemnified Parties who are party to this Agreement shall obtain and hold the
rights and benefits of this Article 12 in trust for and on behalf of such
Indemnified Party.
<PAGE>
-33-
12.5 RETAINING COUNSEL
In any such Claim, the Indemnified Party shall have the right to retain other
counsel to act on his or its behalf, provided that the fees and disbursements of
such counsel shall be paid by the Indemnified Party unless (i) the Indemnifying
Party fails to assume the defence of such suit on behalf of the Indemnified
Party within 10 days of receiving written notice of such suit; (ii) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of the other counsel; or (iii) the named parties to any such Claim
(including any added third or impleaded party) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party and the Indemnifying
Party shall have been advised by counsel that the representation of both parties
by the same counsel would be inappropriate due to the actual or potential
differing interests between them. In no event shall the Indemnifying Party be
liable to pay the fees and disbursements of more than one firm of separate
counsel for all Indemnified Parties and, in addition, one firm of local counsel
in each applicable jurisdiction.
ARTICLE 13
CONTRIBUTION
13.1 CONTRIBUTION WHERE INDEMNIFICATION UNAVAILABLE
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Article 12 is unavailable, in whole or
in part, for any reason to an Indemnified Party in respect of any losses,
claims, damages, liabilities, costs or expenses (or claims, actions, suits or
proceedings in respect thereof) referred to in Article 12, the Indemnifying
Party and the Indemnified Party shall contribute to the amount paid or payable
(or, if such indemnity is unavailable only in respect of a portion of the amount
so paid or payable, such portion of the amount so paid or payable) by the
Indemnifying Party as a result of such losses, claims, damages, expenses,
liabilities, costs or expenses (or claims, actions, suits or proceedings in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Party on the other hand from the offering of the Shares or, if allocation in
such manner is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Indemnifying Party on the one hand and the Indemnified
Party on the other hand in connection with the information, statement, omission,
misrepresentation, order, inquiry, investigation or other matter or thing
referred to in Article 12 which resulted in such losses, claims, damages,
liabilities, costs or expenses (or claims, actions, suits or proceedings in
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Corporation on the one hand and the
Canadian Underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering of the Shares (net of the fee payable to
the Canadian Underwriters but before deducting expenses) received by the
Corporation is to the fee received by the Canadian Underwriters, in each case as
set out in the table on the face page of the English language version of the
Canadian Final Prospectus. The relative fault of the Corporation on the one hand
and of the Canadian Underwriters on the other shall be determined by reference
to, among other things, whether the information, statement, omission,
misrepresentation, order, inquiry, investigation or other matter
<PAGE>
-34-
or thing referred to in Section 10 which resulted in such losses, claims,
damages, liabilities, costs or expenses (or claims, actions, suits or
proceedings in respect thereof) relates to information supplied by or steps or
actions taken or done by or on behalf of the Corporation or to information
supplied by or steps or actions taken or done by or on behalf of the Canadian
Underwriters and the relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, omission, misrepresentation,
order, inquiry, investigation or other matter or thing referred to in Article
12. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities, costs or expenses (or claims, actions,
suits or proceedings in respect thereof) referred to above shall include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such losses, claims, damages,
liabilities, costs or expenses (or claims, actions, suits or proceedings in
respect thereof), whether or not resulting in any such action, suit, proceeding
or claim. The Corporation and the Canadian Underwriters agree that it would not
be just and equitable if contribution pursuant to this Article 13 were
determined by any method of allocation which does not take into account the
equitable considerations referred to immediately above.
A person who is engaged in any fraud or fraudulent misrepresentation shall not,
to the extent that the claims, expenses, liabilities and losses were caused by
that activity, be entitled to claim contributions therefor from any person who
is not engaged in that fraud or fraudulent misrepresentation.
13.2 RIGHT OF CONTRIBUTION IN ADDITION TO OTHER RIGHTS
The rights to contribution provided in this Article 13 shall be in addition to
and not in derogation of any other right to contribution which the Canadian
Underwriters or the Corporation may have by statute or otherwise at law.
13.3 CALCULATION OF CONTRIBUTION
In the event that the Corporation may be held to be entitled to contribution
from a Canadian Underwriter under the provisions of any statute or at law, the
Corporation shall be limited to contribution in an amount not exceeding the
lesser of: (a) the portion of the full amount of the loss or liability giving
rise to such contribution for which such Canadian Underwriter is responsible, as
determined in Section 13.1; and (b) the amount by which the total price at which
the Shares underwritten by such Canadian Underwriter and distributed to the
public were offered to the public exceeds the amount of any damages which such
Canadian Underwriter has otherwise been required to pay by reason of any statute
or law.
13.4 NOTICE
If an Indemnified Party has reason to believe that a claim for contribution may
arise, it shall give the Indemnifying Party notice of such claim in writing, as
soon as reasonably possible, but failure to notify the Indemnifying Party shall
not relieve the Indemnifying Party of any obligation which it may have to the
Indemnified Party under this Article 13.
<PAGE>
-35-
13.5 RIGHT OF CONTRIBUTION IN FAVOUR OF OTHERS
The Corporation and the Canadian Underwriters hereby acknowledge and agree that
each is contracting, with respect to Article 13 hereof, on its own behalf and as
agents for its affiliates, directors, officers, employees and agents. In this
regard the Corporation and each of the Canadian Underwriters shall act as
trustee for such persons and the Corporation and the Canadian Underwriters
accept these trusts and shall hold and enforce the covenants contained in this
Section 13 on behalf of such persons.
ARTICLE 14
OBLIGATIONS OF CANADIAN UNDERWRITERS TO PURCHASE
14.1 FAILURE TO PURCHASE
The obligation of the Canadian Underwriters to purchase the Canadian Firm Shares
at the First Time of Delivery shall be several and not joint and several and,
except as set forth below, shall be limited to the number of Canadian Shares set
out opposite the name of each such Canadian Underwriter in Schedule I hereto.
If one or more of the Canadian Underwriters (the "Refusing Canadian
Underwriters") fails to purchase its applicable number of the Canadian Shares at
the First Time of Delivery (for greater certainty, whether as a result of the
exercise of the rights of termination set forth in Section 8 hereof or
otherwise) and such number of shares exceeds 10% of the total number of Canadian
Shares, then the rights and obligations of the Corporation and the Canadian
Underwriters shall terminate without further liability to any party except in
respect of any liability which may have arisen or may arise under Articles 7, 12
and 13. Nothing in this Article 14 shall relieve any Refusing Canadian
Underwriter from liability to the Corporation. If any one or more of the
Canadian Underwriters fails or refuses to purchase its or their applicable
number of the Canadian Shares, and the aggregate number of such Canadian Shares
is not more than 10% of the total number, the non-defaulting Canadian
Underwriters shall be obligated severally to purchase, pro rata in accordance
with the applicable proportions set out in Schedule I hereto or in such
proportions as the non-defaulting Canadian Underwriters may agree, the Canadian
Shares which such defaulting Canadian Underwriters agreed but failed or refused
to purchase at such time provided that the non-defaulting Canadian Underwriters
shall have the right to postpone the First Date of Delivery for such period, not
exceeding five Business Days, as they shall determine and notify the Corporation
in order that the required changes, if any, in the Prospectus and the U.S.
Registration Statement or in any other document or other arrangements may be
affected.
14.2 SURVIVAL
The respective indemnities, agreements, representations, warranties and other
statements of the Corporation and the several Canadian Underwriters, as set
forth in this Agreement or made by or on behalf of them, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Canadian Underwriter or any controlling person of any Canadian
Underwriter, or the
<PAGE>
-36-
Corporation, or any officer or director or controlling person of the Corporation
and shall survive delivery of and payment for the Shares.
14.3 EXPENSES IN THE EVENT OF TERMINATION OR DEFAULT
If this Agreement shall be terminated for any reason, then in addition to
payment of the amounts contemplated in Section 7 hereof, the Corporation will
reimburse the Canadian Underwriters through the Canadian Representative for all
out-of-pocket expenses approved in writing by the Representative, including fees
and disbursements of counsel, reasonably incurred by the Canadian Underwriters
in making preparations for the purchase, sale and delivery of the Common Shares
not so delivered.
14.4 AUTHORITY OF REPRESENTATIVES
The Canadian Representative is hereby authorized by each of the other Canadian
Underwriters to act on their behalf and the Corporation shall be entitled to and
shall act on any notice given in accordance with Section 14.5 or agreement
entered into by or on behalf of the Canadian Underwriters by the Canadian
Representative which represent and warrant that it has irrevocable authority to
bind the Canadian Underwriters, except in respect of any consent to a settlement
pursuant to Section 12.2 which consent shall be given by the Indemnified Party,
a notice of termination pursuant to Article 10 which notice may be given by any
of the Canadian Underwriters, or any waiver pursuant to Section 10.4, which
waiver must be signed by all of the Canadian Underwriters. The Canadian
Representative shall consult with the other Canadian Underwriters concerning any
matter in respect of which it acts as representative of the Canadian
Underwriters. Furthermore, the Canadian Representative is hereby authorized by
each of the other Canadian Underwriters to execute and deliver the
Inter-Syndicate Agreement on their behalf.
14.5 DELIVERY OF NOTICES
All statements, requests, notices and agreements hereunder shall be in writing,
and if to the Canadian Underwriters shall be delivered or sent by mail or
facsimile transmission to the Representatives on behalf of the Canadian
Underwriters at Nesbitt Burns Inc., P.O Box 150, 4th Floor, 1 First Canadian
Place, Toronto, ON M5x 1H3, Attention: Blair Agnew, telephone 416-359-4287,
facsimile 359-5685 and if to the Corporation shall be delivered or sent by mail
or facsimile transmission to the address of the Corporation set forth in the
Prospectus, Attention: Secretary; provided, however, that any notice to an
Canadian Underwriter pursuant to Section 11 hereof shall be delivered or sent by
mail or facsimile transmission to such Canadian Underwriter at its address,
which address will be supplied to the Corporation by the Canadian Representative
upon request. Any such statements, requests, notices or agreements shall take
effect upon receipt thereof.
14.6 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
<PAGE>
-37-
14.7 GOVERNING LAW
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.
14.8 COUNTERPARTS
This Agreement may be executed by any one or more of the parties hereto in any
number of counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign this
letter and return it to us, and upon the acceptance hereof by you this letter
and such acceptance hereof shall constitute a binding agreement among each of
the Canadian Underwriters and the Corporation.
Very truly yours,
724 SOLUTIONS INC.
Accepted as of the date hereof:
NESBITT BURNS INC.
RBC DOMINION SECURITIES INC.
CREDIT SUISSE FIRST BOSTON SECURITIES CANADA INC.
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
- ---------------------------------------- -------------------------------------- --------------------------------------
NUMBER OF CANADIAN ADDITIONAL SHARES
TO BE PURCHASED IF MAXIMUM OPTION
TOTAL NUMBER OF CANADIAN FIRM SHARES EXERCISED
TO BE PURCHASED
UNDERWRITER
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Nesbitt Burns Inc. [- ] [- ]
- ---------------------------------------- -------------------------------------- --------------------------------------
RBC Dominion Securities Inc. [- ] [- ]
- ---------------------------------------- -------------------------------------- --------------------------------------
Credit Suisse First Boston Securities [- ] [- ]
Canada Inc.
- ---------------------------------------- -------------------------------------- --------------------------------------
Total [- ] [- ]
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
<PAGE>
EXHIBIT 5.1
[Goodman Phillips & Vineberg Letterhead]
January 26, 2000
BY COURIER
724 Solutions Inc.
4101 Yonge Street
Suite 702
Toronto, Ontario
M2P 1N6
Dear Sirs:
At your request, we have examined Amendment No. 2 to the registration
statement on Form F-1 filed pursuant to the United States Securities Act of
1933, as amended (the "Securities Act"), by 724 Solutions Inc., a corporation
incorporated under the laws of the Province of Ontario (the "Company"), with
the United States Securities and Exchange Commission (the "SEC") on January
6, 2000 (the "Registration Statement") relating to the registration under the
Securities Act of up to 6,900,000 common shares of the Company without par
value (the "Shares"), including authorized but unissued Shares being offered
by the Company (including Shares subject to the underwriters' over-allotment
option). The Shares are to be sold to the underwriters named in the
Registration Statement for resale to the public.
EXAMINATIONS
In connection with this opinion letter, we have examined the following:
(i) a certified copy of a resolution of the directors of the Company
dated December 20, 1999 and a certified copy of a resolution of the
shareholders of the Company dated December 20, 1999 (collectively,
the "Resolutions") authorizing the issuance of the Shares; and
(ii) the Company's registration statement on Form F-1 (the "Initial
Registration Statement") filed on November 2, 1999, together with
all amendments thereto and the Registration Statement.
We have also examined such other records and documents provided to us
and such statutes, regulations and other public and corporate records of the
Company and considered such questions of law as we have considered relevant
and necessary for the purposes of the opinions expressed below.
<PAGE>
-2-
RELIANCE AND ASSUMPTIONS
For the purposes of the opinion expressed below, we have relied
upon the Resolutions and have assumed:
(i) the genuineness of all signatures on each document that we have
examined;
(ii) the authenticity of all documents submitted to us as originals,
the conformity with the originals of all documents submitted to
us as copies, whether photostatic, telecopied or otherwise;
(iii) the legal power, capacity and authority of all natural persons
signing in their individual capacity; and
(iv) that the Resolutions continue to be in force and unamended on the
date hereof.
OPINION
Based and relying on the foregoing assumptions and subject to the
following qualification and limitation, we are of the opinion that, upon
completion of the proceedings proposed by the Company, including the adoption
of appropriate resolutions by the pricing committee of the board of directors:
1. The Shares to be offered and sold by the Company pursuant to the
Registration Statement have been duly allotted for issuance and, upon
the receipt of the consideration therefor, will be validly issued and
outstanding as fully paid and non-assessable.
QUALIFICATION
The foregoing opinion is subject to the qualification that we are
solicitors qualified to practice law solely in the Province of Ontario and we
express no opinion as to any laws or any matters governed by any laws other
than the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
<PAGE>
-3-
LIMITATION
We consent to the use of this opinion as an exhibit to the
Registration Statement and any amendments thereto and further consent to the
reference to our firm set forth under the caption "Legal Matters" in the
prospectus included in the Registration Statement.
Yours very truly,
/s/ Goodman Phillips & Vineberg
<PAGE>
YORK MILLS CENTRE
OFFICE LEASE
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
BASIC TERMS AND DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 1
1.01 SUMMARY OF BASIC TERMS. . . . . . . . . . . . . . . . . . . . 1
1.02 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
INTENT AND INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . 6
2.01 NET LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.02 LANDLORD AND REPRESENTATIVE TO ACT REASONABLY AND IN GOOD
FAITH . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.03 DECISION OF EXPERT TO BE BINDING. . . . . . . . . . . . . . . 7
2.04 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 7
2.05 GENERAL MATTERS OF INTENT AND INTERPRETATION. . . . . . . . . 7
ARTICLE 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
GRANT AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.01 GRANT AND TERM. . . . . . . . . . . . . . . . . . . . . . . . 8
3.01A EXTENSION OF TERM . . . . . . . . . . . . . . . . . . . . . . 8
3.02 ADJUSTMENT OF AREA. . . . . . . . . . . . . . . . . . . . . . 8
3.03 ACCEPTANCE AND CONSTRUCTION OF PREMISES . . . . . . . . . . . 8
3.04 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . 8
3.05 USE OF COMMON ELEMENTS. . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.01 COVENANT TO PAY . . . . . . . . . . . . . . . . . . . . . . . 9
4.02 MINIMUM RENT. . . . . . . . . . . . . . . . . . . . . . . . . 9
4.03 ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . 9
4.04 PAYMENT OF TAXES AND OPERATING COSTS BASED UPON LANDLORD'S
ESTIMATES AND SUBJECT TO ADJUSTMENT . . . . . . . . . . . . . 9
4.05 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . 10
4.06 PAYMENTS GENERALLY. . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.01 TAXES - DEFINITION. . . . . . . . . . . . . . . . . . . . . . 10
5.02 TAXES PAYABLE BY THE LANDLORD . . . . . . . . . . . . . . . . 11
5.03 TAXES PAYABLE BY THE TENANT . . . . . . . . . . . . . . . . . 11
5.04 BUSINESS TAXES AND OTHER TAXES OF THE TENANT. . . . . . . . . 11
5.05 TENANT'S RESPONSIBILITY . . . . . . . . . . . . . . . . . . . 11
ARTICLE 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
COMPLEX AND COMMON ELEMENTS - OPERATION, REPAIR, MAINTENANCE, CONTROL
AND PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.02 MAINTENANCE AND REPAIRS BY THE LANDLORD . . . . . . . . . . . 12
6.03 CONTROL OF THE COMPLEX BY THE LANDLORD. . . . . . . . . . . . 12
6.04 RELOCATION OF PREMISES. . . . . . . . . . . . . . . . . . . . 13
6.05 TENANT'S PAYMENT OF OPERATING COSTS . . . . . . . . . . . . . 14
ARTICLE 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
UTILITIES, HEATING, VENTILATING AND AIR-CONDITIONING AND
LANDLORD SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.01 UTILITIES, HEATING, VENTILATING AND AIR-CONDITIONING AND
LANDLORD SERVICES . . . . . . . . . . . . . . . . . . . . . . 16
7.02 CHARGES FOR UTILITIES . . . . . . . . . . . . . . . . . . . . 17
7.03 ADDITIONAL SERVICES TO THE PREMISES . . . . . . . . . . . . . 17
ARTICLE 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
USE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.01 USE OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . 18
8.02 CONDUCT OF BUSINESS AND PROHIBITED ACTIVITIES . . . . . . . . 18
8.03 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . 19
8.04 DIRECTORY BOARD AND SIGNS . . . . . . . . . . . . . . . . . . 19
8.05 DISCHARGE AND RELEASE OF HAZARDOUS SUBSTANCES . . . . . . . . 19
8.06 WASTE DISPOSAL. . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
8.07 SPECIAL INDEMNITY . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INSURANCE AND INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . 20
9.01 LANDLORD'S INSURANCE. . . . . . . . . . . . . . . . . . . . . 20
9.02 TENANT'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . 20
9.03 INCREASE IN PREMIUMS. . . . . . . . . . . . . . . . . . . . . 22
9.04 CANCELLATION OF INSURANCE . . . . . . . . . . . . . . . . . . 22
9.05 LOSS OR DAMAGE. . . . . . . . . . . . . . . . . . . . . . . . 22
9.06 LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . 22
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MAINTENANCE, REPAIRS AND ALTERATIONS BY THE TENANT. . . . . . . . . . . 23
10.01 MAINTENANCE AND REPAIRS BY THE TENANT . . . . . . . . . . . . 23
10.02 APPROVAL OF THE TENANT'S ALTERATIONS. . . . . . . . . . . . . 23
10.03 REPAIR WHERE THE TENANT IS AT FAULT . . . . . . . . . . . . . 24
10.04 TENANT NOT TO OVERLOAD. . . . . . . . . . . . . . . . . . . . 24
10.05 REMOVAL AND RESTORATION BY THE TENANT . . . . . . . . . . . . 24
10.06 TENANT TO DISCHARGE ENCUMBRANCES. . . . . . . . . . . . . . . 25
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DAMAGE AND DESTRUCTION AND EXPROPRIATION . . . . . . . . . . . . . . . . 25
11.01 INTERPRETATION OF ARTICLE 11. . . . . . . . . . . . . . . . . 25
11.02 DAMAGE TO PREMISES. . . . . . . . . . . . . . . . . . . . . . 25
11.03 DAMAGE TO THE BUILDING. . . . . . . . . . . . . . . . . . . . 26
11.04 EXPROPRIATION OF THE COMPLEX, THE BUILDING OR THE PREMISES. . 27
11.05 AWARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.06 ARCHITECT'S CERTIFICATE . . . . . . . . . . . . . . . . . . . 27
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS . . . . . . . . . . . . . . . 27
12.01 TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.02 LANDLORD'S RIGHT TO TERMINATE . . . . . . . . . . . . . . . . 29
12.03 TERMS AND CONDITIONS RELATING TO TRANSFERS. . . . . . . . . . 29
12.04 NO ADVERTISING OF THE PREMISES. . . . . . . . . . . . . . . . 30
12.05 SALES AND OTHER DISPOSITIONS BY THE LANDLORD. . . . . . . . . 30
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ACCESS AND ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.01 RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
STATUS STATEMENTS, SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . 31
14.01 STATUS STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 31
14.02 SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . 31
14.03 ATTORNEY. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.01 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 32
15.02 REMEDIES UPON AN EVENT OF DEFAULT . . . . . . . . . . . . . . 33
15.03 LANDLORD MAY CURE THE TENANT'S DEFAULT. . . . . . . . . . . . 33
15.04 WAIVER OF EXEMPTION FROM DISTRESS . . . . . . . . . . . . . . 34
15.05 APPLICATION OF MONEY. . . . . . . . . . . . . . . . . . . . . 34
15.06 REMEDIES GENERALLY. . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
16.01 RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . 34
16.02 OVERHOLDING - NO TACIT RENEWAL. . . . . . . . . . . . . . . . 34
16.03 RELATIONSHIP OF PARTIES - NO PARTNERSHIP OR AGENCY. . . . . . 34
16.04 ACCORD AND SATISFACTION . . . . . . . . . . . . . . . . . . . 34
16.05 TENANT PARTNERSHIP. . . . . . . . . . . . . . . . . . . . . . 35
16.06 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.07 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.08 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . 35
16.09 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.10 MANAGEMENT OF THE COMPLEX . . . . . . . . . . . . . . . . . . 35
16.11 REGISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 35
16.12 SURVIVAL OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . 36
16.13 FIRST RIGHT OF REFUSAL. . . . . . . . . . . . . . . . . . . . 36
<PAGE>
16.14 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.15 ACCEPTANCE OF LEASE . . . . . . . . . . . . . . . . . . . . . 37
SCHEDULE "A" - LEGAL DESCRIPTION OF THE COMPLEX. . . . . . . . . . . . . . 38
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES. . . . . . . . . . . . . . . . . 40
SCHEDULE "C" - LANDLORD'S AND TENANT'S WORK. . . . . . . . . . . . . . . . 41
SCHEDULE "D" - RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . 45
SCHEDULE "E" - METHOD OF MEASUREMENT . . . . . . . . . . . . . . . . . . . 48
</TABLE>
<PAGE>
THIS LEASE is dated the 23RD day of APRIL, 1998 and is made
B E T W E E N
TRUSCAN PROPERTY CORPORATION
(the "Landlord")
OF THE FIRST PART
- and -
724 SOLUTIONS INC.
(the "Tenant")
OF THE SECOND PART
ARTICLE 1
BASIC TERMS AND DEFINITIONS
1.01 SUMMARY OF BASIC TERMS
(a) "Complex Name" means "York Mills Centre", subject to Section 6.03(a)(vi).
(b) Address of Landlord: Suite 1210
110 Yonge Street
Toronto, Ontario
M5C 1T4
Attention: Vice President & Counsel
with a copy to the Property Manager:
Enterprise Commercial Management Inc.
York Mills Centre
20 York Mills Road
Suite 206
North York, Ontario
M2P 2C2
(c) Address of Tenant: BCE Place
Bay Wellington Tower
181 Bay Street
Suite 2810
Toronto, Ontario
M5J 2T3
Attention: Mr. Christopher E. Erickson,
President
(d) (1) Indemnifier: N/A
(2) Address of
Indemnifier: N/A
(e) Premises: Part of Floor Seven (7), currently designated
as Suite No.700, as shown in the approximate
location outlined in red on Schedule "B".
(f) Rentable Area of
the Premises: Approximately 7,830 square feet, (727.41
square metres), subject to Section 3.02.
(g) (1) Commencement Date: August 1, 1998
(2) Term: commencing on the Commencement Date and
expiring on July 31, 2001
(3) Extension of Term: One right to extend the Term for a period of
Three (3) years, subject to Section 3.01A.
-4-
<PAGE>
(h) Fixturing Period: a maximum of ninety (90) days after the
Landlord has delivered possession of the
Premises to the Tenant (subject to Section
16.08), as more particularly set out in
Section 4.02 of Schedule "C". The possession
date is estimated to be May 1, 1998.
Possession of the Premises will in no event
be delivered to the Tenant until this Lease
is executed by the Tenant and delivered to
the Landlord in a form satisfactory to the
Landlord.
(i) Minimum Rent (subject to Section 4.02):
<TABLE>
<CAPTION>
YEARS ANNUAL RATE PER YEAR PER MONTH
PER SQUARE FOOT
(OF RENTABLE AREA)
<S> <C> <C> <C>
1 $12.75 $ 99,832.50 $8,319.38
2 $13.25 $103,747.50 $8,645.63
3 $13.75 $107,662.50 $8,971.88
</TABLE>
(j) "Advance Rent" means the sum of Twenty-One Thousand, Four Hundred and
Three Dollars and Forty-One Cents ($21,403.41) paid by the Tenant to the
Landlord to be held without interest and to be applied on account of the
Minimum Rent and Additional Rent first becoming payable during the Term.
(k) "Security Deposit" means the sum of Twenty-Two Thousand and Sixty-Seven
Dollars and Forty-Nine Cents ($22,067.49) subject to Section 4.05.
(l) "Inducement to Lease" means the sum of Nil Dollars per square foot of
Usable Area of the Premises, subject to Section 16.13.
The terms set out above are intended to be only a summary of certain basic
terms of this Lease which are supplemented by various provisions set out
later in this Lease which are applicable thereto.
1.02 DEFINITIONS
The following definitions apply in this Lease:
"Accounting Period" means a calendar year or such other accounting period,
not exceeding sixteen (16) months, as the Landlord may, upon notice to the
Tenant, adopt from time to time for the Building.
"Additional Rent" means those amounts payable by the Tenant under Section
4.03 together with all other money payable by the Tenant under this Lease
(except Minimum Rent), whether or not it is designated "Additional Rent".
"Applicable Laws" means all statutes, laws, by-laws, rules, regulations,
ordinances, orders and requirements of a governmental, quasi-governmental or
other public authority having jurisdiction over any matter.
"Architect" means an accredited architect chosen by the Landlord from time to
time.
"Building" means that portion of the Office Component in which the Premises
are located, being comprised of the building municipally known as 4101 Yonge
Street in North York, Ontario, as it may be altered, expanded or reduced from
time to time, together with those portions of the Common Elements which
exclusively serve such building. The Building does not include the Parking
Facilities.
"Business Hours" means the hours from 8:00 a.m. to 6:00 p.m. Monday to
Friday, inclusive, except for statutory and local holidays and Saturdays and
Sundays.
"Business Taxes" has the meaning set out in Section 5.01 of this Lease.
-5-
<PAGE>
"Capital Tax" is an amount determined by multiplying each of the "Applicable
Rates" by the "Complex Capital" and totalling the products. "Complex
Capital" is the amount of capital which the Landlord determines, without
duplication, is invested from time to time by the Landlord, the Owners, or
all of them, in doing all or any of the following: acquiring, developing,
expanding, redeveloping, leasing and improving the Complex. Complex Capital
will not be increased by any financing or refinancing except to the extent
that the proceeds are invested directly as Complex Capital. An "Applicable
Rate" is the capital tax rate specified from time to time under any statute
of Canada and any statute of the Province which imposes a tax in respect of
the capital of corporations. Each Applicable Rate will be considered to be
the rate that would apply if none of the Landlord or the Owners employed
capital outside of the Province. For greater certainty, Capital Tax includes
federal large corporation tax and provincial capital tax. The Landlord shall
equitably apportion any exemptions or deductions available for any such tax
amongst its assets including the Complex.
"Commencement Date" means the date determined pursuant to Section 1.01(g)(1).
"Common Elements" (a) the areas, facilities, utilities, improvements,
equipment and installations (collectively, "elements") in or on the Complex
that, from time to time, are not intended to be leased to tenants of the
Complex, or are designated from time to time as Common Elements by the
Landlord, (b) the elements outside the Complex that serve the Complex (or any
part of it) and are designated by the Landlord from time to time as part of
the Common Elements, (c) the elements in or on Leasable Premises that are
provided for the benefit of the tenants of the Complex and their employees,
customers and other invitees in common with others entitled to use them, and
(d) the elements that are designated by the Landlord from time to time which
serve all or any of the Retail Component, the Office Component, the Parking
Facilities and the TTC and Bus Facilities and any other part of the Complex
(such as, without limitation, passageways, stairs, walkways, escalators and
elevators which give access to all or any of the Parking Facilities, the TTC
and Bus Facilities, the Retail Component and the Office Component). The
Common Elements include, but are not limited to, the roof, exterior wall
assemblies including weather walls, exterior and interior structural
components and bearing walls in the buildings and improvements in the
Complex; equipment, furniture, furnishings and fixtures; electronic systems
such as music, fire prevention, security and communication systems; columns;
pipes; electrical, plumbing, drainage, mechanical and other installations,
equipment or services in or on the Complex or related to it, as well as the
structures housing them; and the HVAC System.
"Complex" means the lands described in Schedule "A" hereto and all buildings,
structures, improvements, equipment, facilities and appurtenances thereon
(including, without limitation, the Common Elements, the Office Component,
the Retail Component, Storage Areas, the Building, the Parking Facilities,
the TTC and Bus Facilities, and other buildings, structures and improvements
constructed or to be constructed thereon, all as may be expanded, altered or
reduced from time to time.
"Event of Default" means any event specified as such in Section 15.01.
"Expert" means any architect, engineer, chartered accountant, quantity
surveyor, or other professional consultant, in any case appointed by the
Landlord and, in the reasonable opinion of the Landlord, qualified to perform
the function for which he is retained.
"Fixturing Period" means the period described in Section 4.02 of Schedule "C".
"Hazardous Substance" means any substance or thing or mixture of them which
alone, or in combination, or in concentrations, are flammable, corrosive,
reactive or toxic or which might cause adverse effects or be deemed
detrimental to living things or to the environment, including, but not
limited to, any pollutant, contaminant, toxic or hazardous substance, such as
by way of example, urea formaldehyde, asbestos, polychlorinated biphenyl,
pesticides, or any other substance the removal, manufacture, preparation,
generation, use, maintenance, storage, transfer, handling or ownership of
which is subject to Applicable Laws.
"HVAC System" means all interior climate control (including heating,
ventilating and air-conditioning) systems, installations, equipment and
facilities (including the buildings or areas which house them) which service
all or any part of the Complex (including the Common Elements and the
Premises) that are operated and maintained by the Landlord. The HVAC System
includes, without limitation, the distribution system within Leasable
Premises (including the Premises), distribution piping, air handling units
and fan coil and ventilation units that form part of those systems, together
with the monitoring, energy saving and control systems (including the
thermostat) in each Leasable Premises supplied by the HVAC System (including
the Premises). The HVAC System does not include (i) self-contained heating,
ventilating and air-conditioning systems in individual Leasable Premises that
have been installed and are maintained by the occupants (if any); and (ii)
any tenant-maintained supplementary air-conditioning units, facilities or
services that are installed for individual tenants or a group of tenants to
satisfy requirements that are in excess of the normal operational capacity of
the HVAC System.
-6-
<PAGE>
"Landlord" means the party of the First Part and Persons for whom the
Landlord is responsible in law.
"Landlord's Work" (a) with respect to the Tenant's initial occupation of the
Premises, means the work to be performed by the Landlord pursuant to Section
2.02 of Schedule "C" and (b) with respect to Article 11, means the work to be
performed by the Landlord pursuant to Section 2.01 of Schedule "C".
"Leasable Premises" means those premises (including the Premises) in or on
the Complex that are, or are intended from time to time to be occupied in
connection with office or retail purposes. With respect to kiosks, "Leasable
Premises" shall include permanent kiosks only. For greater certainty,
"Leasable Premises" excludes Storage Areas.
"Lease" means this agreement, all Schedules thereto and the Rules and
Regulations adopted or revised from time to time, together with every
properly executed instrument which by its terms amends, modifies or
supplements this Lease.
"Lease Year" means, in the case of the first Lease Year, a period of twelve
consecutive calendar months from and after the Commencement Date (plus the
part of the month, if any, from the Commencement Date to and including the
last day of the month in which the Commencement Date occurs if the
Commencement Date is not on the first day of a month) and, in the case of
Lease Years after the first Lease Year, is a period of twelve (12)
consecutive calendar months starting on the first day after the Lease Year
that immediately precedes it. However, the last Lease Year, whether it is
twelve (12) calendar months or not, terminates on the expiry or earlier
termination of this Lease.
"Leasehold Improvements" means (a) heating, ventilating and air-conditioning
systems, facilities and equipment in or serving the Premises; (b) floor
covering that is affixed (except for wall-to-wall carpeting laid over a
finished floor which is removable without damage to such floor); (c) light
fixtures; (d) doors (excluding any interior sliding doors if provided the
Tenant replaces them with the existing doors permitted to be installed by the
Landlord); (e) hardware and partitions; (f) internal stairways, escalators
and elevators; (g) fixtures, improvements, installations, alterations and
additions from time to time made or installed in the Premises by or on behalf
of the Tenant or any previous occupant of the Premises; and (h) anything that
would not normally be considered to be trade fixtures, furniture or
equipment. For greater certainty, the reception desk installed by the Tenant
is considered to be a trade fixture.
"Minimum Rent" means the rent payable pursuant to Section 4.02.
"Mortgagee" means a mortgagee or hypothecary creditor (including a trustee
for bondholders) of the Complex or part thereof, and a chargee or other
secured creditor that holds the Complex or a part thereof as security (but a
Mortgagee is not a creditor, chargee or security holder of a tenant of
Leasable Premises).
"Office Component" collectively means that part of the Complex being
comprised of the four (4) commercial office buildings intended by the
Landlord for occupation by office tenants, as they may be expanded, altered
or reduced from time to time, together with those portions of the Common
Elements which exclusively serve all of any of those buildings. For greater
certainty, "Office Component" excludes the Parking Facilities.
"Operation Standard" has the meaning set out in Section 6.01 of this Lease.
"Operating Costs" has the meaning set out in Section 6.05(a) of this Lease.
"Owners" means the owner or owners from time to time (other than the
Landlord) of the freehold or leasehold title of the Complex.
"Parking Facilities" means that component of the Complex comprised of the
improvements for parking, together with the areas and facilities that are
appurtenant solely to those improvements (such as, without limitation,
accessways, entrances, exits and any delivery passages located therein), all
as may be expanded, altered or reduced from time to time.
"Person" means an individual, firm, partnership, corporation, trust,
unincorporated organization, government or any department or agency thereof
or any combination or groups of them.
"Premises" means the Leasable Premises described in Sections 1.01(e) and
1.01(f) and as outlined in red on Schedule "B". If the Premises are entirely
self-enclosed, the boundaries of the Premises extend:
-7-
<PAGE>
(a) from the top surface of the structural subfloor to the bottom surface of
the structural ceiling of the Premises; and
(b) to the interior surface of all interior walls.
The dimensions of Leasable Premises that are a kiosk will be determined by
the Landlord.
"Prime Rate" means, at any time, the prime lending rate of interest expressed
as a rate per annum which the Landlord's designated chartered bank or trust
company establishes at its main office in Toronto, Ontario as the reference
rate of interest in order to determine interest rates it will charge at such
time for demand loans in Canadian Dollars to its Canadian customers and which
it refers to as its "prime rate".
"Property Manager" means a company or other entity, if any, retained by the
Landlord from time to time to operate or manage the Complex.
"Proportionate Share" means: (i) for the purpose of calculating the Tenant's
Share of Taxes under Section 5.03(a), a fraction which has as its numerator
the Rentable Area of the Premises and as its denominator the Rentable Area of
the Office Component; and (ii) for the purpose of calculating the Tenant's
share of Operating Costs under Section 6.05(a), a fraction which has as its
numerator the Rentable Area of the Premises and as its denominator the
aggregate of the Rentable Area of the Office Component and the Rentable Area
of the Retail Component.
"Province" means the province in which the Complex is located.
"Released Persons" collectively and individually means the Landlord, the
Property Manager, the Owners and the Mortgagee. In sections which contain a
release or other exculpatory provision or an indemnity in favour of any or
all of the Released Persons, such Released Person or Released Persons shall
include the officers, directors, employees and agents of each such Released
Person and the Landlord acts as agent for, or as trustee for, the benefit of
all Released Persons so that each such release, indemnity and/or other
exculpatory provision is fully enforceable by such Released Persons.
"Rent" means all Minimum Rent and Additional Rent payable pursuant to this
Lease.
"Rentable Area" means, in the case of all individual Leasable Premises within
the Office Component (including the Premises) and the Retail Component, the
area measured in accordance with Schedule "E" attached to this Lease or in
accordance with the Building Owners and Managers Association International
standard of measuring areas in office buildings which the Landlord, in its
sole discretion, designates from time to time. The Rentable Area of any
individual Leasable Premises (including the Premises) may be adjusted from
time to time by the Landlord to give effect to any structural, functional or
other change on the floor on which such Leasable Premises are located.
"Rentable Area of the Office Component" means the aggregate Rentable Area of
all individual Leasable Premises in the Office Component, whether actually
rented or not. Where there are Leasable Premises located within the Office
Component from which retail business activity is conducted (tobacco stores in
a lobby, for example), those Leasable Premises will be considered to be
included in the Office Component. The Rentable Area of the Office Component
may be adjusted from time to time by the Landlord to give effect to any
structural, functional or other change affecting all or any part of the
Office Component.
"Rentable Area of the Retail Component" means the aggregate Rentable Area of
all individual Leasable Premises within the Retail Component, whether
actually rented or not. Where there are Leasable Premises located within the
Retail Component from which non-retail business activity is conducted
(professional offices, for example), those Leasable Premises will be
considered to be included in the Retail Component. The Rentable Area of the
Retail Component may be adjusted from time to time by the Landlord to give
effect to any structural, functional or other change affecting the Retail
Component.
"Rental Taxes" has the meaning set out in Section 2.01(b) of this Lease.
"Retail Component" means that portion or portions of the Complex which the
Landlord designates from time to time to contain retail businesses, as may be
expanded, altered or reduced from time to time, together with those portions
of the Common Elements which exclusively serve those areas. For greater
certainty, "Retail Component" excludes the Parking Facilities.
"Rules and Regulations" means the rules and regulations made by the Landlord
from time to time pursuant to Section 16.01 and including those set out in
Schedule "D".
-8-
<PAGE>
"Stipulated Rate" means the rate of interest per annum that is the lesser of
(a) three percentage points more than the Prime Rate and (b) the maximum rate
permitted by law.
"Storage Areas" means those areas in the Complex which are designated or
intended from time to time by the Landlord to be used for storage purposes,
as they may be expanded, altered or reduced from time to time.
"Taxes" has the meaning set out in Section 5.01 of this Lease.
"Tenant" means the party of the Second Part and Persons for whom the Tenant
is responsible in law.
"Tenant's Share of Taxes" has the meaning set out in Section 5.03(a) of this
Lease.
"Tenant's Work" means the work to be performed by the Tenant pursuant to
Section 3.02 of Schedule "C".
"Term" means the period specified in Section 1.01(g)(2) (unless sooner
terminated).
"Transfer" has the meaning set out in Section 12.01(a).
"TTC and Bus Facilities" means The Toronto Transit Commission subway station
and various local and regional bus terminals, together with the areas and
facilities that are appurtenant solely to those improvements (such as,
without limitation, accessways, entrances, exits and any passages located
therein), all as may be expanded, altered or reduced from time to time.
"Utilities" has the meaning set out in Section 7.01(a)(ii) of this Lease (and
"Utility" shall have a corresponding meaning).
1.03 SCHEDULES
The Schedules shall form part of this Lease and are as follows:
Schedule "A" - Legal Description of the Complex
Schedule "B" - Floor Plan of the Premises
Schedule "C" - Landlord's and Tenant's Work
Schedule "D" - Rules and Regulations
Schedule "E" - Method of Measurement
ARTICLE 2
INTENT AND INTERPRETATION
2.01 NET LEASE
(a) This Lease is a completely net lease to the Landlord. Except as stated
in this Lease, the Landlord is not responsible for costs, charges, or
expenses relating to the Complex, the Premises, their use and occupancy,
their contents, or the business carried on in them, and the Tenant will pay
the charges, impositions, costs and expenses relating to the Premises except
as stated in this Lease. This Section will not be interpreted to make the
Tenant responsible for ground rentals that may be payable by the Landlord or
the Owners, payments to Mortgagees or, subject to Section 5.01, the
Landlord's income taxes. Capital Tax is not considered as income tax.
(b) The Tenant will pay to the Landlord, in the manner specified by the
Landlord, the full amount of all goods and services taxes, rental taxes,
value-added taxes, multi-stage taxes, business transfer taxes, and any other
taxes imposed in respect of the Rent payable by the Tenant under this Lease
or in respect of the rental of space under this Lease, (herein called "Rental
Taxes"). Rental Taxes are payable by the Tenant whether they are
characterized as a goods and services tax, sales tax, value-added tax,
multi-stage tax, business transfer tax, or otherwise, with the intent that
the Landlord be fully indemnified in respect of all Rental Taxes payable or
collectible by the Landlord in respect of Rent or the rental of space under
this Lease. Rental Taxes payable by the Tenant (i) will be calculated by the
Landlord in accordance with the applicable legislation; (ii) will be paid to
the Landlord at the same time as the amounts to which the Rental Taxes are
payable to the Landlord under this Lease (or upon demand at such other time
or times as the Landlord from time to time determines); and (iii) despite
anything to the contrary, will not be considered to be Rent but the Landlord
will have all of the same remedies for, and rights of recovery with respect
to such amounts, as it
-9-
<PAGE>
has for non-payment of Rent under this Lease or at law. If a deposit is
forfeited or an amount becomes payable to the Landlord due to a default or as
consideration for a modification of this Lease and the applicable legislation
deems a part of the deposit or amount to include Rental Taxes, then the
deposit or amount will be grossed up to ensure that the full amount of the
forfeited deposit or amount payable is received by the Landlord in full
without encroachment by any deemed payment, input credit or otherwise.
2.02 LANDLORD AND REPRESENTATIVE TO ACT REASONABLY AND IN GOOD FAITH
The Landlord, and each Person acting for the Landlord, in making a
determination, designation, calculation, estimate, conversion, or allocation
under this Lease, will act reasonably and in good faith and each accountant,
architect, engineer or surveyor, or other professional Person employed or
retained by the Landlord will act in accordance with the applicable
principles and standards of the Person's profession.
2.03 DECISION OF EXPERT TO BE BINDING
The decision of any Expert whenever provided for under this Lease and any
certificate related thereto shall be final and binding on the parties hereto
and there shall be no further right of dispute or appeal unless the Tenant is
able to demonstrate that the Expert is in error.
2.04 ENTIRE AGREEMENT
(a) This Lease includes the Schedules attached to it and the Rules and
Regulations. There are no covenants, promises, assurances, agreements,
representations, conditions, warranties, statements or understandings, either
oral or written, between the parties concerning this Lease, the Premises, the
Building, the Complex or any matter related to all or any of them, except
those that are set out in this Lease.
(b) This Lease supersedes and revokes all previous negotiations,
arrangements, letters of intent, offers to lease, lease proposals, brochures,
and information conveyed, whether oral or in writing, between the parties
hereto or their respective representatives.
(c) Unless specifically provided to the contrary, no amendment,
modification or supplement to this Lease will be binding unless set out in
writing and executed by the Tenant and the Landlord.
2.05 GENERAL MATTERS OF INTENT AND INTERPRETATION
(a) Each obligation under this Lease is a covenant.
(b) The captions, section numbers, article numbers and Table of Contents
do not define, limit, construe or describe the scope or intent of the
sections or articles.
(c) The use of the neuter singular pronoun to refer to the Landlord or the
Tenant is a proper reference even though the Landlord or the Tenant is an
individual, a partnership, a corporation or a group of two or more
individuals, partnerships or corporations. The grammatical changes needed to
make the provisions of this Lease apply in the plural sense when there is
more than one Landlord or Tenant and to corporations, associations,
partnerships or individuals, males or females, are implied.
(d) Whenever a statement or provision in this Lease is followed by words
denoting inclusion or example (such as "including" or "such as") and then a
list of, or reference to, specific matters or items, such list or reference
shall not be read so as to limit or restrict the generality of such statement
or provision, even though words such as "without limitation" or "without
limiting the generality of the foregoing" do not precede such list or
reference.
(e) If a part of this Lease or the application of it to a Person or
circumstance, is to any extent held or rendered invalid, unenforceable or
illegal, that part:
(i) is independent of the remainder of the Lease and is severable
from it, and its invalidity, unenforceability or illegality
does not affect, impair or invalidate the remainder of this
Lease; and
(ii) continues and circumstance except those as to which it has been
held or rendered invalid, unenforceable or illegal.
No part of this Lease will be enforced against a Person, if, or to the extent
that by doing so, the Person is made to breach a law, rule, regulation or
enactment.
(f) This Lease will be construed in accordance with the laws of Canada and
the Province.
-10-
<PAGE>
(g) Time is of the essence of this Lease.
(h) The Landlord acts as agent for, or as trustee for, the Property
Manager, all Mortgagees and the Owners to the extent necessary to ensure that
all exculpatory provisions and indemnities included in their favour in this
Lease are enforceable against the Tenant by them, and by the Landlord.
(i) To the extent that liability exists at the time of expiry or earlier
surrender or termination of this Lease, the covenant(s) from which such
liability is derived shall survive such expiry or earlier surrender or
termination.
ARTICLE 3
GRANT AND TERM
3.01 GRANT AND TERM
The Landlord leases the Premises to the Tenant, and the Tenant leases the
Premises from the Landlord, to have and to hold during the Term, subject to
the terms and conditions of this Lease.
3.01A EXTENSION OF TERM
Provided:
(a) the Tenant is not then in default under the terms of the Lease; and
(b) the Tenant gives to the Landlord written notice of its intention to
extend the Term of the Lease not less than six (6) months prior to the
expiry of the initial Term,
then the Landlord will grant to the Tenant the right to extend the Term of
this Lease upon the expiry of the initial Term for a period of three (3)
years (the "Extended Term") upon the same terms and conditions as set out in
this Lease except that the Tenant will accept the Premises on an "as is"
basis with no Landlord's Work to be performed and except also that:
(i) there shall be no further right to extend the Term; and
(ii) the Minimum Rent payable during each consecutive twelve (12)
month period of the Extended Term shall be mutually agreed upon
by the Landlord and the Tenant within thirty (30) days
following the date on which the Tenant has provided notice of
its intention to extend the Term of the Lease, based on the
then current market rent for similar premises in comparable
properties in North Yonge Street as at the commencement of the
Extended Term.
If the Tenant fails to give the appropriate notice within the time limit set
out herein for extending the Term, or if the Landlord and Tenant are not able
to agree upon the Minimum Rent for the Extended Term within the time period
set out herein, then this Section 3.01a shall be null and void and of no
further force and effect.
3.02 ADJUSTMENT OF AREA
The estimated Rentable Area of the Premises is set out in Section 1.01(f).
If the Rentable Area of the Premises is certified by an Expert, then such
Rentable Area will apply instead of the area indicated in Section 1.01(f) and
Rent will be adjusted as calculated by the Landlord, which adjustment will be
retroactive if the certification does not occur until after the Commencement
Date. If required because of a rearrangement of partitions or other changed
condition on the floor or floors on which the Premises are located, the
Rentable Area of the Premises will be recalculated by an Expert and Rent will
be adjusted effective the date on which such change occurred.
3.03 ACCEPTANCE AND CONSTRUCTION OF PREMISES
All of the provisions of Schedule "C" shall apply to the Tenant's acceptance
and construction of the Premises under this Lease.
3.04 QUIET ENJOYMENT
-11-
<PAGE>
If the Tenant performs its obligations under this Lease, it may hold and use
the Premises without interference by the Landlord or any other Person
claiming by, through or under the Landlord, subject however to the covenants,
terms and conditions of this Lease.
3.05 USE OF COMMON ELEMENTS
The Tenant has the non-exclusive and non-transferable right (except in
conjunction with a Transfer under Article 12 of this Lease) to use the Common
Elements in common with others entitled to do so, for the purposes for which
they are intended, subject, however to this Lease (but this will not be
deemed to confer on the Tenant any right to use the Parking Facilities unless
specifically set out in this Lease).
ARTICLE 4
RENT
4.01 COVENANT TO PAY
The Tenant covenants, throughout the Term, to pay Minimum Rent and Additional
Rent to the Landlord or to the Property Manager as the Landlord directs, at
its head office, or at any other place designated by the Landlord or the
Property Manager, as the case may be, in Canadian funds, without demand and
without deduction, abatement, set-off or compensation, except as in this
Lease is otherwise provided.
4.02 MINIMUM RENT
During each Lease Year throughout the Term the Tenant shall pay the Minimum
Rent calculated at the rate set out in Section 1.01(i), payable in equal
consecutive monthly instalments each in advance on the first day of each
calendar month, subject to the adjustment provisions of Section 3.02. If the
Commencement Date is not the first day of a calendar month, the Tenant shall
pay, on such Commencement Date, Minimum Rent calculated on a per diem basis
(based on 365 days) from the Commencement Date to the end of the month in
which it occurs.
4.03 ADDITIONAL RENT
The Tenant shall also pay, as Additional Rent, the aggregate of:
(a) the Tenant's Share of Taxes and other Taxes in accordance with
Sections 5.03 and 5.04;
(b) the Tenant's Proportionate Share of Operating Costs in accordance with
Section 6.05; and
(c) the aggregate of:
(i) the charges for Utilities in accordance with Section 7.02;
(ii) costs of any additional services in accordance with Section
7.03; and
(iii) such other costs, charges, amounts and expenses as are required
to be paid by the Tenant under this Lease.
For the first month of the Term Additional Rent is due on the Commencement
Date and thereafter is payable on the first day of each calendar month in
advance, except where this Lease states that it is payable on demand or at
such other time. Additional Rent accrues daily.
4.04 PAYMENT OF TAXES AND OPERATING COSTS BASED UPON LANDLORD'S ESTIMATES
AND SUBJECT TO ADJUSTMENT
(a) Prior to the Commencement Date and the beginning of each Accounting
Period thereafter, the Landlord shall deliver to the Tenant a bona
fide estimate of the Tenant's Share of Taxes and its Proportionate
Share of Operating Costs for the appropriate Accounting Period and,
without further notice, the Tenant shall pay to the Landlord in
monthly instalments in advance one-twelfth (1/12) of such estimate
simultaneously with the Tenant's payments of Minimum Rent during such
Accounting Period.
-12-
<PAGE>
(b) The Landlord shall deliver to the Tenant within one hundred and fifty
(150) days after the end of each Accounting Period a written statement
(the "Statement") setting out in reasonable detail (i) the total
amount of Operating Costs and Taxes which the Landlord's third party
arm's length auditors have established as being accurate for such
Accounting Period, and (ii) the Tenant's Share of Taxes and its
Proportionate Share of Operating Costs which are payable by the Tenant
for such Accounting Period. If the Tenant has paid less than a
Statement specifies, the Tenant will pay the deficiency with the next
monthly payment of Minimum Rent. If the Tenant has paid more than a
Statement specifies, the Landlord will have the option to apply the
excess in payment of amounts owing by the Tenant, apply the excess in
reduction of future Rent due under this Lease or refund the excess to
the Tenant within a reasonable time after delivery of the Statement.
(c) If an Accounting Period is less than twelve (12) calendar months, the
Tenant's Share of Taxes and the Tenant's Proportionate Share of
Operating Costs will be adjusted on a per diem basis, based on three
hundred and sixty-five (365) days.
(d) The Tenant may claim a readjustment in respect of all or any of the
Taxes or Operating Costs for an Accounting Period only by giving
written notice to the Landlord within twelve (12) months after its
receipt of the Statement in respect of that Accounting Period, which
notice must specify the error of computation or allocation. In any
event, the Tenant will pay the Rent in accordance with the Statement
until the dispute is resolved.
4.05 SECURITY DEPOSIT
(a) The Security Deposit referred to in Section 1.01(k) of this Lease
shall be held by the Landlord, prior to and throughout the Term, with
interest, as security for the performance by the Tenant of all of its
covenants and obligations under this Lease. The Landlord shall keep
the Security Deposit invested in a term deposit with a Canadian
Chartered Bank, upon which interest will be earned at the then current
30 day rate and which interest will accrue to the Tenant's benefit and
be credited to the Tenant at the end of the Term or extension thereof.
(b) If at any time Rent is owing by the Tenant under this Lease or if the
Tenant fails to perform any of its other covenants and obligations
under this Lease, then the Landlord may, at its option, in addition to
any and all other rights and remedies provided for in this Lease or at
law, appropriate and apply the entire Security Deposit, or so much of
it as is necessary to compensate the Landlord for all loss, expenses
or damages sustained or suffered by the Landlord due to or arising
from such breach on the part of the Tenant. If all or any portion of
the Security Deposit is so appropriated and applied, the Tenant shall,
upon written request of the Landlord, forthwith remit to the Landlord
a sufficient amount in cash to restore the Security Deposit to the
original sum deposited, and the Tenant's failure to do so within five
(5) days after receipt of such request constitutes a breach of this
Lease. If the Tenant complies with all of its covenants and
obligations under this Lease, the Security Deposit shall be returned
to the Tenant without interest within thirty (30) days after the
expiry or earlier termination of the Term or extension thereof, or, at
the Landlord's option, be applied by the Landlord on account of the
last month's Rent payable hereunder.
(c) The Landlord may deliver the Security Deposit to any purchaser of the
Landlord's interest in the Premises, the Building or the Complex, as
the case may be, if such interest is sold, and thereupon the Landlord
is discharged from any further liability with respect to the Security
Deposit.
4.06 PAYMENTS GENERALLY
All payments by the Tenant to the Landlord under this Lease shall:
(a) be applied towards amounts then outstanding under this Lease in such
manner as the Landlord determines;
(b) bear interest daily from the due date to the date of payment,
calculated daily, at the Stipulated Rate;
(c) be subject, if not paid when due, to a late payment charge of Fifty
Dollars ($50.00) to cover the Landlord's additional administrative
costs in connection therewith;
(d) upon the request of the Landlord, be made by way of post-dated cheques
delivered for such period as the Landlord requests. So long as the
Tenant is 724 Solutions Inc. or a Permitted Transferee and is not in
monetary default under the terms of this Lease, the foregoing
requirement to provide the Landlord with post-dated cheques shall be
suspended; and
(e) survive the expiration or earlier termination of this Lease.
-13-
<PAGE>
ARTICLE 5
TAXES
5.01 TAXES - DEFINITION
In this Lease:
(a) "Taxes" means (i) all taxes, rates, levies, fees, duties, charges
(including local improvement charges) and assessments whatsoever,
imposed, assessed, levied, rated or charged by any lawful taxing
authority against the Complex or any part of it from time to time
(including, but not limited to, the Common Elements), whether school,
municipal, regional, provincial, federal or otherwise, and any taxes
(including, without limitation, Business Taxes) or other amounts which
are imposed in lieu of, or in addition to, any of the foregoing,
whether or not similar to or of the foregoing character, and whether
or not in existence at the Commencement Date, and any taxes levied or
assessed against the Landlord or the Owners on account of its or their
ownership of or interest in the Complex, but excluding taxes on the
income or profits of the Landlord or the Owners except to the extent
they are levied in lieu of the foregoing, and (ii) the costs and
expenses incurred for consultation, appraisal, legal and other fees
and expenses to the extent they are incurred in an attempt to
minimize, verify or reduce amounts mentioned in Section 5.01(a)(i); and
(b) "Business Taxes" means all taxes, rates, duties, levies and
assessments whatsoever, whether municipal, parliamentary or otherwise,
levied, imposed or assessed, without duplication, against any Person
in respect of the use or occupancy of, or any business carried on, by
tenants or other occupants of the Complex, or against the Landlord or
the Owners on account of its or their ownership of the Complex or in
respect of individual Leasable Premises in the Complex, or in respect
of the leasehold improvements, equipment and facilities of tenants or
other occupants on or in the Complex or any part thereof or on the
Landlord or the Owners on account of its or their ownership of or
interest in any of them.
5.02 TAXES PAYABLE BY THE LANDLORD
The Landlord will, subject to Sections 5.03, 5.04 and 6.05, pay all Taxes but
the Landlord may defer such payments or compliance with Applicable Laws in
connection with the levying of Taxes to the fullest extent permitted by law
so long as it pursues any contest or appeal of any such Taxes with reasonable
diligence.
5.03 TAXES PAYABLE BY THE TENANT
(a) In each Accounting Period throughout the Term the Tenant will pay to
the Landlord the "Tenant's Share of Taxes" in the manner and at the
time set out in Section 4.04(a). The "Tenant's Share of Taxes" means
the Tenant's Proportionate Share of those Taxes which have been
equitably allocated to the Office Component by the Landlord in
accordance with Section 5.03(b), subject, however to Sections 5.03(c)
and 5.04, or, at the Landlord's option in the event that the Premises
are separately assessed, the Taxes which are separately assessed
against the Premises.
(b) In making its allocation of Taxes to the Office Component, the
Landlord shall be entitled but not obligated to consider such factors
as the Landlord determines to be relevant such as, by way of example,
the relative benefits derived by the Office Component of the various
other components of the Complex and of the Common Elements, the costs
of construction of the Office Component and the relative assessment
values relating to the Office Component.
(c) The Landlord shall be entitled but not obligated to allocate Taxes
amongst categories of Leasable Premises in the Complex on the basis of
such factors as the Landlord determines to be relevant, such as, by
way of example, the types of business or activity carried on therein,
the locations in the Complex, costs of construction, relative benefits
derived by Leasable Premises, relative assessment values, non-public
school support designations, and vacancies. The Landlord shall be
entitled to adjust the Tenant's Proportionate Share of Taxes having
regard to the category in which the Tenant is placed by the Landlord.
5.04 BUSINESS TAXES AND OTHER TAXES OF THE TENANT
The Tenant will pay, before delinquency, to the taxing authorities or, if
payable by the Landlord to the taxing authorities, then to the Landlord, all
"Business Taxes" for which a separate bill in respect of the Tenant or the
Premises is issued by the taxing authorities in respect of the use of
occupancy of, the business conducted on, or equipment or facilities within
the Premises or owned by the Tenant or occupants of the Premises. If there
is no such separate bill issued by the relevant authority in respect of a
Business Tax, then Business Tax will be included in Taxes.
-14-
<PAGE>
5.05 TENANT'S RESPONSIBILITY
The Tenant will, (a) on the Landlord's request, promptly deliver to the
Landlord, (i) receipts for payment of all Business Taxes payable by the
Tenant; (ii) notices of any assessments for Taxes or Business Taxes or other
assessments received by the Tenant that relate to the Premises or the Complex
or any portion thereof; and (iii) whatever other information relating to
Taxes and Business Taxes the Landlord reasonably requests from time to time;
and (b) deliver to the Landlord, at least ten (10) days before the last date
for filing appeals, notice of any appeal or contest that the Tenant intends
to institute with respect to Taxes or Business Taxes payable by the Tenant
and obtain the prior written consent of the Landlord for the appeal or
contest which consent will not be unreasonably withheld. If the Tenant
obtains the Landlord's consent, the Tenant will, (1) deliver to the Landlord
whatever security for the payment of the Taxes or Business Taxes the Landlord
reasonably requires; (2) promptly and diligently pursue the appeal or
contest; and (3) keep the Landlord informed on all aspects of it.
The Tenant will indemnify and save the Landlord harmless from all losses,
costs, charges and expenses arising from Taxes or Business Taxes as well as
any taxes that are imposed in place of Taxes or Business Taxes or which are
assessed against rentals payable under this Lease in place of Taxes or
Business Taxes, whether against the Landlord or the Tenant including, but not
limited to, increases in Taxes or Business Taxes arising directly or
indirectly out of an appeal or contest by the Tenant. The Tenant will deliver
to the Landlord any security for such an increase in Taxes or Business Taxes
that the Landlord reasonably requires.
ARTICLE 6
COMPLEX AND COMMON ELEMENTS -
OPERATION, REPAIR, MAINTENANCE, CONTROL AND PAYMENT
6.01 OPERATION OF COMPLEX
During the Term, the Landlord shall operate the Complex as would a prudent
owner to the standards from time to time prevailing for a project of
comparable age, size, quality and location in the area in which the Complex
is located (the "Operation Standard").
6.02 MAINTENANCE AND REPAIRS BY THE LANDLORD
(a) The Landlord will maintain and repair, in accordance with Operation
Standard:
(i) the structure of the Complex, including exterior walls and
roofs; and
(ii) the Common Elements (including the HVAC System and the
mechanical, electrical and other base building systems),
and the cost (except for the cost of repairing and replacing inherent
structural defects or weaknesses) will be included in Operating Costs in
accordance with the definition of Operating Costs.
(b) The obligations of the Landlord under Section 6.02(a) are subject to
the following exceptions:
(i) any peril which is not covered by insurance which the Landlord
is required to maintain under this Lease or the cost of repair
or restoration which exceeds the proceeds of such insurance
actually received by the Landlord (or which the Landlord
reasonably ought to have received had it maintained insurance
in accordance with Section 9.01); and
(ii) Damage or Expropriation as set out in Article 11 in the
circumstances where this Lease will terminate.
(c) The Tenant will promptly notify the Landlord of any damage or repair
which is required in the Common Elements and in the Premises for which
it is the Landlord's responsibility to repair or maintain.
6.03 CONTROL OF THE COMPLEX BY THE LANDLORD
Those portions of the Complex which are not leased to tenants (including,
without limitation, the Common Elements) are under the exclusive control of
the Landlord. Without limitation, the Landlord may, in its operation and
control of the Complex:
-15-
<PAGE>
(a) (i) temporarily close the Complex or any part of it to prevent the
public or any Person from obtaining rights therein; temporarily
obstruct or close off or shut down the Complex, or any part of
it for inspection, maintenance, repair, construction or safety
reasons; make, modify and terminate easements and other
agreements pertaining to the use and operation of the Complex,
or any part of it, including agreements with the owner or
owners of any lands adjacent to the Complex;
(ii) retain contractors and employ all personnel, including
supervisory personnel and managers, that the Landlord considers
necessary for the effective maintenance, repair, operation,
administration or management of the Complex or any portion
thereof;
(iii) use parts of the Common Elements for display, decorations,
entertainment, merchandising, and structures designed for
retail selling or special features or promotional activities;
(iv) reasonably regulate all aspects of tenant related loading and
unloading and delivery and shipping, and all aspects of garbage
collection and disposal;
(v) impose or permit to be imposed charges upon any Person
(including the general public) for the use of the Parking
Facilities; and
(vi) change both or either of the Building Name and Complex Name or
the address or designation of the Building or the Complex from
time to time, without liability, upon not less than thirty (30)
days prior notice.
(b) (i) change the area, level, location, arrangement or use of the
Complex or any part of it;
(ii) construct other buildings, structures or improvements in or on
the Complex or any part of it; make alterations of, additions
to, subtractions from or rearrangements of the Complex, or any
part of it; and construct additional storeys, buildings or
facilities adjoining or near the Complex or any part of it;
(iii) install kiosks and other installations, permanent or otherwise,
in or on the Common Elements;
(iv) diminish, expand, alter, relocate or rearrange the buildings,
Parking Facilities and other parts of the Complex; and
(v) do and perform such other acts in and to the Complex or any
part of it as the Landlord, in the use of good business
judgment, determines to be advisable for the proper operation
of the Complex.
Despite anything else in this Lease, the Landlord will not be liable for any
diminution or alteration of the Common Elements or the Parking Facilities
that occurs as the result of the Landlord's exercise of its rights under this
Section 6.03 or elsewhere under this Lease and the Tenant will not be
entitled to compensation or a reduction or abatement of Rent. No such
diminution or alteration of the Common Element or the Parking Facilities will
be deemed to be a default by the Landlord of any obligation for quiet
enjoyment contained in this Lease or provided at law or a constructive or
actual eviction of the Tenant. In the exercise of its rights under Section
6.03(b), the Landlord shall repair any damage caused to the Premises and
shall use reasonable efforts not to unduly interfere with the Tenant's use of
the Premises and operation of its business any more than is reasonably
necessary in the circumstances and shall not prevent access to and from the
Premises, except in the case of real or apprehended emergency or temporarily
during the course of completion of maintenance or repair of the Building.
6.04 RELOCATION OF PREMISES
Notwithstanding anything contained in this Lease to the contrary, the
Landlord shall have the right, at any time upon not less than sixty (60) days
prior written notice to relocate the Tenant (including its sub-tenants and
all other permitted occupants) to other Leasable Premises in the Building
(the "Relocated Premises") and the following terms and conditions shall be
applicable:
(a) the Relocated Premises (which term shall mean the Premises after
relocation) shall be reasonably comparable to the Premises in terms of
Rentable Area but the Landlord may elect to relocate the Tenant to
Relocated Premises which have a greater rentable area than the
Premises provided that in such event, Minimum Rent, the Tenant's Share
of Taxes and its Proportionate Share of Operating Costs will be
calculated as if the Relocated Premises contained the same Rentable
Area as the Premises;
-16-
<PAGE>
(b) the Landlord shall provide, at its expense, leasehold improvements in
the Relocated Premises comparable to the standards of the Leasehold
Improvements in the Premises;
(c) the Landlord shall pay for the reasonable moving costs (if any) of the
Tenant's trade fixtures and furnishings and printing, wiring and
security costs related to the relocation from the Premises to the
Relocated Premises;
(d) the Landlord agrees to use its reasonable efforts to effect the
relocation with a minimum of disruption to the Tenant's business; and
(e) all of the terms and conditions of this Lease shall apply to the
Relocated Premises.
6.05 TENANT'S PAYMENT OF OPERATING COSTS
(a) In each Accounting Period throughout the Term the Tenant will pay to
the Landlord, in the manner and at the time set out in Section
4.04(a), its Proportionate Share of the costs and expenses of
maintaining, operating, repairing and administering the Complex (such
costs and expenses referred to as "Operating Costs"), subject,
however, to Sections 6.05(c), 6.05(d) and 6.05(e). Operating Costs
will be calculated as if the Complex were one hundred percent (100%)
leased and occupied by tenants of the Complex.
(b) Operating Costs include, but are not limited to, those listed below,
none of which is to be a duplication of another cost or expense:
(i) salaries, wages, pension plan contributions, contributions and
premiums for unemployment insurance and workers compensation
insurance, and similar premiums and contributions, fringe
benefits, severance pay and termination payments paid to or
with respect to all personnel, including management and other
supervisory personnel, employed or retained to carry out the
operation, management, cleaning, maintenance and repair of the
Complex;
(ii) costs of policing, security, supervision, and traffic control;
(iii) costs of cleaning, pest control, recycling, snow removal,
garbage and waste collection and disposal and landscaping;
(iv) costs of electricity, gas, lighting, fuel, water, steam, public
utilities, loudspeakers, public address and musical
broadcasting systems, energy conservation equipment and systems
and telecommunications and information systems used in or
serving the Common Elements, and, if the Landlord elects to
include them in Operating Costs in accordance with provisions
identical or similar to Section 7.02(c) of this Lease, costs of
electricity, water, fuel, power, steam and other utilities
provided to Leasable Premises in the Complex in such quantities
as the Landlord reasonably determines constitutes normal use
from time to time for tenants in the Complex;
(v) costs of all insurance which the Landlord is obligated or
permitted to obtain under this Lease (including the Landlord's
insurance premiums, all amounts falling below the level of the
Landlord's insurance deductibles which are paid by the Landlord
in connection with claims made against it and all costs and
expenses incurred by the Landlord for defending and paying such
claims);
(vi) to the extent not included in Taxes under Section 5.03(a) and
provisions similar or identical to such provisions in leases of
other tenants of Leasable Premises in the Complex, the Business
Taxes and other Taxes, if any, payable by the Landlord or the
Owners with respect to or reasonably allocated by the Landlord
to the Complex other than Leasable Premises located within it
and costs incurred by the Landlord in contesting, resisting,
verifying or appealing any such Business Taxes or Taxes;
(vii) Capital Tax;
(viii) rental costs of equipment and signs, and the cost (including
rental) of building supplies and tools used in the maintenance,
cleaning, repair and operation of the Complex;
(ix) auditing, accounting, legal and other professional and
consulting fees and disbursements;
(x) costs of repairs (including major repairs) and replacements to
the Complex (except for repairs or replacements of inherent
structural defects or weaknesses) and costs (including repair
and replacement) of the maintenance, cleaning and operating
equipment, master utility meters and
-17-
<PAGE>
all other fixtures, equipment and facilities that are part of
the Common Elements (including, without limitation, fixtures,
equipment and facilities made or added for the greater comfort
or convenience of the public or the tenants);
(xi) depreciation or amortization of the costs referred to in
Section 6.05(b)(x) unless they are, under Section 6.05(b)(x),
charged fully in the Accounting Period in which they are
incurred, all in accordance with rates and for periods
determined by the Landlord from time to time in accordance with
accepted practices in the commercial real estate industry, but
the Landlord shall be entitled to charge the remaining
undepreciated or unamortized balance of any of the foregoing
costs of repairs and replacements over one or more Accounting
Periods as determined by the Landlord;
(xii) interest calculated on the unamortized or undepreciated part of
the costs referred to in Section 6.05(b)(xi), calculated
monthly, from the date on which the relevant costs were
incurred, at an annual rate of interest that is designated by
the Landlord from time to time;
(xiii) the fair market rental value of premises and storage areas in
or on the Complex used by the Landlord or by its Property
Manager in connection with the maintenance, repair, operation,
administration and management of the Complex (having regard to
minimum rent and additional rent (including, without
limitation, Operating Costs, Taxes and utilities) being charged
for similar space); and
(xiv) an administration fee of fifteen percent (15%) of the aggregate
costs set out above (but excluding those referred to in
Sections 6.05(b)(vi), (vii) and (xii)).
The following costs and expenses will not be included in the calculation of
Operating Costs:
(aa) initial capital costs of constructing the Complex;
(bb) ground rent (if any), depreciation and amortization
(except as otherwise specifically set out in this
Lease), and interest on any capital retirement of debt
affecting all or any part of the Complex;
(cc) costs incurred by the Landlord in leasing and preparing
Leasable Premises in the Complex for lease, including
brokerage commissions, legal costs, advertising costs
and tenant inducement or allowance payments; and
(dd) the cost of any additional service provided to the
Tenant pursuant to Section 7.03 of this Lease or to
other tenants of the Complex pursuant to lease
provisions similar or identical to such provision.
From the total of the costs referred to in Section 6.05(b)(i) to (xiv)
(inclusive) there is deducted:
(1) net recoveries that reduce the expenses incurred by the
Landlord in operating and maintaining the Complex and
the Common Elements which are received by the Landlord
from tenants as a result of any act, omission, default
or negligence of tenants or as the result of breaches by
tenants of the provisions on their leases (but not
recoveries from tenants under clauses similar to this
Section 6.05); and
(2) net proceeds from insurance policies taken out by the
Landlord, but only to the extent that such proceeds
represent recoveries on account of costs which were
previously included in Operating Costs.
(c) If the Complex is comprised of different categories of Leasable
Premises, the Landlord shall be entitled but not obligated to allocate
Operating Costs among the various categories on the basis of such
factors as the Landlord determines to be relevant, such as, by way of
example, the relative uses of each such category and the benefits
derived by them. In such event, the Landlord shall be entitled to
adjust the Tenant's Proportionate Share of Operating Costs having
regard to the category in which the Premises is included.
(d) Notwithstanding Section 6.05(a):
(i) if any service which is normally provided by the Landlord to
some tenants of the Complex in their Leasable Premises is not
provided by the Landlord to the Tenant under the specific terms
of this Lease, or to a lesser extent than average, then in
determining the Tenant's Proportionate Share of Operating Costs
the cost of such service (except as it relates to the Common
Elements) shall be excluded or reduced, as appropriate; and
-18-
<PAGE>
(ii) if any service which is normally provided by the Landlord to
some tenants of the Complex in their Leasable Premises is
provided by the Landlord to the Tenant but not to all tenants
of Leasable Premises in the Complex or is provided by the
Landlord to the Tenant to a greater extent than average, then
in determining the Tenant's Proportionate Share of Operating
Costs, the cost of such service shall be attributed by the
Landlord to the Leasable Premises to which such service is
provided and according to the extent to which it is provided.
(e) If any facilities, services, systems or utilities:
(i) for the operation, repair, maintenance, administration or
management of the Complex are provided from another building or
other buildings owned or operated by the Landlord or agent; or
(ii) for the operation, repair, maintenance, administration or
management of another building or other buildings owned or
operated by the Landlord or agent are provided from the Complex,
then the costs, charges and expenses therefor shall be allocated by
the Landlord between the Complex and the other building or buildings
on a fair and equitable basis and the amount so allocated to the
Complex shall be included in Operating Costs.
ARTICLE 7
UTILITIES, HEATING, VENTILATING AND
AIR-CONDITIONING AND LANDLORD SERVICES
7.01 UTILITIES, HEATING, VENTILATING AND AIR-CONDITIONING AND LANDLORD
SERVICES
(a) In accordance with the Operation Standard, the Landlord shall provide:
(i) heat, ventilating and air-conditioning by means of the HVAC
System during Business Hours to the Premises and to those
Common Elements requiring such services as designated by the
Landlord to maintain a temperature adequate for normal
occupancy;
(ii) the use of the electricity, water, fuel, power, steam and other
utilities (the "Utilities") serving the Building in normal
quantities as are generally made available to other tenants of
the Building and sufficient for normal office use by the
Landlord together with Utilities for those Common Elements
requiring such Utilities as designated by the Landlord;
(iii) necessary supplies in public washrooms sufficient for normal
use by tenants in the Building;
(iv) janitorial services to the Building (including the Premises, it
being agreed to by the Tenant that it will not arrange for its
own janitorial services to the Premises) as reasonably required
to keep same in a clean condition and interior and exterior
window washing, at reasonable intervals, provided that all
curtains, carpets, rugs, drapes or window coverings shall be
cleaned and maintained by the Tenant. The Tenant will permit
access to the Premises necessary for the performance of the
janitorial services; and
(v) subject to the Rules and Regulations, elevator service in the
Building during Business Hours and at all other times other
than Business Hours.
(b) The Landlord shall have the exclusive right to replace bulbs, tubes
and ballasts (collectively the "Bulbs") in the lighting system in the
Premises, on either an individual or a group basis. The cost of such
replacement will be paid by the Tenant upon demand or, where the
replacement involves Building standard Bulbs, the Landlord may, at its
option, include the cost of replacing such Bulbs in the Premises and
in other Leasable Premises in the Complex in the Operating Costs of
the Complex. The Landlord may request that the Tenant replace
non-Building standard Bulbs in the Premises.
-19-
<PAGE>
(c) The Landlord is not liable for interruption or cessation of, or
failure in, the supply of any Utilities, services or systems in, to or
serving the Complex, the Building or the Premises, whether they are
supplied by the Landlord or by others and whether or not the
interruption or cessation is caused by the Landlord's negligence, but
the Landlord shall proceed with reasonable diligence to end such
interruption, nor will the Landlord be liable for any act or omission
of any Person employed or engaged by the Landlord or its Property
Manager to provide the services set out in Section 7.01(a)(iv)
provided such Persons are bonded. Further, the Tenant acknowledges the
existence of the TTC and Bus Facilities within the Complex and agrees
that the Landlord shall have no liability with respect to any noise or
vibration in, of and to the Premises or the Complex (including the
HVAC System) or with respect to any other interference with the
Tenant's use of the Premises or the Complex which results from the
transit operations or existence of the Yonge-York Mills Subway Station
and other TTC and Bus Facilities or their integration with the
Complex.
(d) The following provisions apply with respect to the Tenant's use of and
obligations with respect to the HVAC System:
(i) the Tenant shall not, without the Landlord's prior written
consent, install equipment in the Premises which would affect
the temperature otherwise maintained in the Premises by the
HVAC System as normally operated. The Landlord, acting
reasonably, may direct the Tenant to install supplementary
air-conditioning units, facilities or services in the Premises,
as may in the Landlord's reasonable opinion be required to (1)
maintain proper temperature levels in the Building and the
Premises, or (2) ensure that the HVAC System continues to
operate efficiently, and the Tenant shall do so as soon as is
reasonably possible failing which the Landlord may install them
and the Tenant shall pay to the Landlord, on demand, the costs
thereof together with fifteen percent (15%) of such costs for
the Landlord's overhead. The maintenance, repair and
replacement of all such supplementary air-conditioning units,
facilities or services in the Premises will be performed by the
Landlord at the Tenant's expense or, at the Landlord's option,
by the Tenant;
(ii) the interior layout or partitioning of the Premises shall be
modified by the Tenant, if necessary, in accordance with the
reasonable requirements of the Landlord to secure maximum
efficiency of the HVAC System servicing the Premises. The
Tenant shall comply with the Landlord's reasonable requests and
directions pertaining to the operation and regulation of those
portions of the HVAC System within and serving the Premises,
failing which the Landlord shall be entitled to take such steps
as it deems advisable including, without limitation, entering
upon the Premises and taking the necessary corrective action,
and the Tenant will pay to the Landlord, on demand as
Additional Rent, all costs incurred by the Landlord in so doing
together with a sum equal to fifteen percent (15%) of such
costs for the Landlord's overhead; and
(iii) the Tenant will ensure that all heating, ventilation and
air-conditioning vents, ducts and units in the Premises are
kept free from obstructions at all times and will comply with
the Landlord's directions with respect to the Landlord's
required clearance, if any, between such vents and units and
any furniture or other article or fixture located in the
Premises.
7.02 CHARGES FOR UTILITIES
(a) If there are separate meters in the Premises which permit direct
payment of Utilities to the supplier of such Utilities, then the
Tenant will pay for all Utilities consumed in the Premises directly to
such suppliers.
(b) If Utilities are not so separately metered in the Premises, the cost
to the Tenant of such Utilities to the Premises which constitutes
normal use for other tenants in the Complex, as determined by the
Landlord, acting reasonably, will, at the Landlord's option, form part
of Operating Costs or be paid by the Tenant to the Landlord in equal
consecutive monthly instalments in advance simultaneously with the
Tenant's payment of Minimum Rent based upon estimates of the Landlord
and subject to final adjustment within a reasonable time after the
period for which the estimate has been made.
(c) If the Landlord reasonably determines that the Tenant is consuming
disproportionate quantities of any Utility in excess of typical
consumption of that Utility by other tenants in the Complex, then the
Landlord may install, at the Tenant's expense, separate check meters
or other measuring devices in the Premises or elsewhere and may use an
Expert to assist it in determining the cost of such excess Utilities.
All costs incurred by the Landlord in providing such excess quantity
of the Utility (including all costs incurred in making the allocation)
will be paid for by the Tenant in accordance with Section 7.03(a).
The Landlord will, at the Tenant's cost, provide card access to the Premises
consistent with the Building Security System.
-20-
<PAGE>
7.03 ADDITIONAL SERVICES TO THE PREMISES
If from time to time requested in writing by the Tenant and to the extent
that it is reasonably able to do so, the Landlord shall provide in the
Premises services in addition to those set out in Section 7.01(a), provided
that the Tenant shall pay to the Landlord, upon demand, the costs of those
additional services at such Building standard reasonable rates as the
Landlord may from time to time establish. Without limiting the generality of
the foregoing, such services shall include:
(a) services performed at the Tenant's request including, without
limitation, heating, ventilating and air-conditioning services outside
Business Hours, excess quantities of Utilities, maintenance, repair,
special janitorial or cleaning services and construction of Leasehold
Improvements after the Commencement Date.
(b) services provided at the Landlord's reasonable discretion including,
without limitation, supervising and approving any Premises Work
performed pursuant to Section 10.02 and supervising the movement of
furniture, equipment, freight and supplies for the Tenant; and
(c) performance by the Landlord on behalf of the Tenant of any of the
Tenant's obligations set out in this Lease which the Tenant fails to
perform, provided that nothing herein shall obligate the Landlord to
perform any such obligations.
ARTICLE 8
USE OF PREMISES
8.01 USE OF THE PREMISES
The Tenant will use and permit the Premises to be used only for general
office purposes and for no other purpose. However, in no event shall the
Tenant use or permit all or any part of the Premises, either directly or
indirectly by way of lease, sublease, assignment of lease, licence or
otherwise, to be used for the purposes of retail banking, nor for the
installation, placement or use of any automatic banking machine, automatic
cash dispenser or other device of whatsoever nature the purpose of which is
to provide or advertise any banking service of any kind whatsoever, but
nothing herein shall be construed so as to permit the Tenant to carry on such
business or operation unless specifically agreed to in writing by the
Landlord. For greater certainty, the Tenant shall be entitled to develop and
work with applications and software for banking operations.
8.02 CONDUCT OF BUSINESS AND PROHIBITED ACTIVITIES
(a) The Tenant will complete the Tenant's Work set out in Section 3.02 of
Schedule "C" and open the whole of the Premises for business on the
Commencement Date and will, conduct its business permitted pursuant
to Section 8.01 in a reputable and first class manner consistent with
the best interests of the Building as a whole and the Complex. In the
conduct of its business, the Tenant will:
(i)
(ii) use only the Building Name, the Complex Name and the insignia
that the Landlord requires in connection with the Building and
the Complex in the advertising of its business in the Premises,
claim no rights in those names, marks and insignias and
promptly abandon or assign to the Landlord any such rights that
it acquires by operation of law.
(b) The Tenant will not carry on or permit any business, conduct or
practice, whether through advertising or selling procedures or
otherwise, which, in the reasonable opinion of the Landlord, may harm
the business or reputation of the Landlord or reflect unfavourably on
the Complex or any part of it (or on other tenants in the Complex) or
which may tend to mislead, deceive or be fraudulent to the public.
(c) The Tenant will not carry on any business or do or permit anything
which causes a nuisance, is dangerous or which is offensive or an
annoyance to the Landlord or other occupant of the Complex, as
determined by the Landlord in its sole discretion.
-21-
<PAGE>
(d) The Tenant will ensure that all furniture, fixtures and equipment on
or installed in the Premises are of first-class quality and will keep
them in good condition.
(e) The Tenant will comply with any reasonable requests of the Landlord
and with the practices or procedures that any governmental or public
authority may from time to time introduce for consumption of energy
and will pay to the Landlord, on demand, all additional energy
consumed by the Tenant by reason of non-compliance under this Section
8.02(e) as determined by the Landlord in a reasonable manner.
8.03 COMPLIANCE WITH LAWS
(a) The Tenant will obtain all necessary permits and licenses required for
the occupancy and carrying on of its business in and from the Premises.
(b) The Tenant will comply with all Applicable Laws which relate to its
ability to enter into and comply with this Lease, which affect the
Premises or the Leasehold Improvements or which pertain to the
Tenant's use of the Premises or the conduct of business or doing of
work therein. If the Landlord is obligated by an Applicable Law to
modify, extend, alter or replace any part of the Premises or any
Leasehold Improvements, trade fixtures, furniture or equipment in the
Premises, then the Landlord may, at its option, either do the
necessary work at the expense of the Tenant, or give notice to the
Tenant to do such work within the requisite period of time and the
Tenant will comply with such direction. The Tenant shall pay to the
Landlord, upon demand, the costs of any work performed by the
Landlord under this Section 8.03(b) together with an administration
fee equal to fifteen percent (15%) of such costs. Notwithstanding the
foregoing, to the extent that the Landlord's Work relating to the
Premises did not comply with all Applicable Laws in force immediately
before the Commencement Date and to the extent that the Landlord has
not complied with such Applicable Laws, the Tenant will not be
responsible for ensuring such compliance.
8.04 DIRECTORY BOARD AND SIGNS
(a) The Tenant shall be entitled, at the Landlord's expense, to have its
name shown upon the directory board of the Building, the design, style
and location of which is as provided by the Landlord.
(b) The Tenant will not display any sign, picture, advertisement, notice,
lettering or decoration on the exterior of the Premises or in the
interior of the Premises where it is visible from the exterior of the
Premises without, in each instance, obtaining the Landlord's prior
written approval. The Tenant will, at the Landlord's expense, erect
an identification sign on the outside of the doors leading into the
Premises of a type and in a location specified in writing by the
Landlord and in accordance with the Landlord's requirements for the
Building. All signs will remain the property of the Tenant and will
be maintained by the Tenant at its sole cost and expense. At the
expiration or earlier termination of the Term, the Tenant will remove
all of its signs and will promptly repair all damage caused by such
removal. The Tenant's obligation to observe this covenant will
survive the expiration or earlier surrender or termination of this
Lease. In no event will the Tenant display any sign, picture,
advertisement, notice, lettering or decoration on the exterior of the
Building or the Premises where it is visible from the exterior of the
Building.
8.05 DISCHARGE AND RELEASE OF HAZARDOUS SUBSTANCES
(a) Except as clearly permitted under Applicable Laws, the Tenant will not
bring or permit to be brought on or into the Premises, the Building,
the Complex, or any part thereof, or discharge or release or permit to
be discharged or released, any Hazardous Substance. Where Applicable
Laws permit the discharge or release of a Hazardous Substance, the
Landlord may, at the Tenant's cost, perform audits of all such
discharges or releases. If a discharge or release of a Hazardous
Substance by the Tenant occurs that is not in compliance with
Applicable Laws, the Tenant will immediately notify the Landlord and
all authorities having jurisdiction (collectively the "Authorities"
and individually an "Authority") and the Tenant will immediately clean
up the discharge or release and restore the environment affected by
the discharge or the release to the satisfaction of the Authorities
and the Landlord. The Tenant will further provide to the Landlord a
certificate from a duly qualified consulting engineer or from the
Authorities stating that the clean up and restoration has occurred in
accordance with all Applicable Laws.
(b) The Tenant will comply fully with the orders of all Authorities (as
defined above in Section 8.05(a)), including, but not limited to,
requirements pertaining to pollution control, environmental audits or
the clean up or remediation of damage to the environment with respect
to anything done by the Tenant (or others on behalf of the Tenant).
If the Tenant fails or refuses to promptly, expeditiously and fully
carry out any order of an Authority or to comply with its obligations
as set out
-22-
<PAGE>
above, or if the Landlord determines that the Tenant is not competent
to carry out the order or to comply with the obligation, the Landlord
may, at its option, upon five (5) days prior written notice (or on
such shorter notice as is reasonable in the case of emergencies),
enter upon the Premises and do what the Tenant was required to do and
all costs incurred by the Landlord in so doing together with an
administration fee of fifteen percent (15%) of those costs will be
payable by the Tenant immediately upon demand.
(c) The Tenant will retain all documents, records and other materials and
promptly make them available to the Landlord to the extent required to
permit the Landlord to determine that the Tenant is in full compliance
with its obligations under this Section 8.05.
8.06 WASTE DISPOSAL
(a) If the Landlord provides garbage disposal or collection facilities or
services, the Tenant will use them only for the disposal of solid
waste that is not a Hazardous Substance which can be lawfully
transported to and dumped at the closest landfill site without
surcharges or penalties. The Tenant will use the sewers only to
dispose of liquid waste that is not a Hazardous Substance which may be
lawfully discharged into the municipal sewer.
(b) Subject to Applicable Laws, all wastes other than those solid and
liquid wastes permitted to be disposed of as provided above in Section
8.06(a), will be disposed of by the Tenant at its expense at least
once every three months using the Landlord's designated contractor or,
if one is not designated, using a properly licensed waste hauler and
waste removal service. All storage of waste by the Tenant must be
done strictly in compliance with Applicable Laws at the Tenant's sole
expense.
(c) The Tenant will comply with all requirements of governmental
authorities pertaining to waste reduction including, but not limited
to, performance of waste audits and waste reduction work plans. The
Tenant will further provide promptly, copies of all documents and
other evidence required to establish compliance with such requirements
and the Tenant will cooperate with the Landlord by providing whatever
documents and other information and by doing whatever else is
reasonably requested in connection with waste reduction matters.
8.07 SPECIAL INDEMNITY
The Tenant will indemnify the Released Persons and save them harmless from
every loss, cost, claim, expense, fine, penalty, prosecution or alleged
infraction which they, or any of them, suffer or suffers as the result of the
Tenant's breach of any of its obligations under either or both of Sections
8.05 and 8.06. In addition, the Tenant will pay to the Landlord, immediately
upon demand, all costs incurred by the Landlord in doing any clean-up,
restoration or other remedial work as a consequence of the Tenant's failure
to comply with any of its obligations under either or both of Sections 8.05
and 8.06.
ARTICLE 9
INSURANCE AND INDEMNITY
9.01 LANDLORD'S INSURANCE
The Landlord will maintain, throughout the Term:
(a) "all risks" insurance on the Complex (excluding the foundations and
excavations) and the machinery, boilers and equipment contained in it
and owned by the Landlord or the Owners (except property that the
Tenant and other tenants are required to insure);
(b) "all risks" rent and rental value insurance insuring loss of insurable
gross profits attributable to the perils insured against by the
Landlord or commonly insured against by landlords, including loss of
rent and other amounts receivable from tenants in the Complex;
(c) public liability and property damage insurance with respect to the
Landlord's operations in the Complex; and
(d) such other coverage, or increases in the amount of coverage specified
above in this Section 9.01 as any Mortgagee may require from time to
time or as the Landlord or the Owners may consider advisable from time
to time,
-23-
<PAGE>
in reasonable amounts and with those reasonable deductions that a prudent
owner of a property similar to the Complex would maintain, having regard to
size, age and location. This Section does not relieve the Tenant from
liability arising from or contributed to by its negligence or misconduct. No
insurable interest is conferred on the Tenant under any policies of insurance
carried by the Landlord and the Tenant has no right to receive proceeds of
any of those policies.
9.02 TENANT'S INSURANCE
(a) The Tenant will maintain the insurance described below throughout the
Term and any period when it is in possession of the Premises
(including, for greater certainty, the Fixturing Period), and each
policy of that insurance will name, as insureds, the Tenant, the
Landlord, the Owners and the Mortgagee as their respective interests
may appear. The insurance which the Tenant is required to maintain is
as follows:
(i) "all risks" property insurance (including earthquake, flood and
collapse) in an amount equal to one hundred percent (100%) of
the full replacement cost, insuring (1) all property owned by
the Tenant, or for which the Tenant is legally liable, or
installed by or on behalf of the Tenant, and located within the
Complex, including, but not limited to, fittings,
installations, alterations, additions, partitions and all other
Leasehold Improvements and (2) the Tenant's inventory,
furniture and movable equipment;
(ii) if applicable, broad form boiler and machinery insurance on a
blanket repair and replacement basis with limits for each
accident in an amount of at least the full replacement cost of
all Leasehold Improvements and of all boilers, pressure
vessels, heating, ventilating and air-conditioning equipment
and miscellaneous electrical apparatus owned or operated by the
Tenant or by others (except for the Landlord) on behalf of the
Tenant in the Premises or relating to or serving the Premises;
(iii) extra expense insurance in such manner as will reimburse the
Tenant for loss attributable to all perils insured against in
subsections 9.02(a) and (b) or attributable to prevention of
access to the Premises or the Complex as a result of any of
such perils;
(iv) public liability and property damage insurance including
personal injury liability, contractual liability, non-owned
automobile liability, employer's liability and owners' and
contractors' protective insurance coverage, with respect to
the Premises and the Tenant's use of the Common Elements, with
coverage including the activities and operations conducted by
the Tenant and any other Person on the Premises and by the
Tenant and any other Person performing work on behalf of the
Tenant and those for whom the Tenant is in law responsible, in
any other part of the Complex. These policies will (1) be
written on a comprehensive basis with inclusive limits of at
least Five Million Dollars ($5,000,000.00) per occurrence for
bodily injury for any one or more Persons or property damage
(but the Landlord, acting reasonably or the Mortgagee, may
require higher limits from time to time), and (2) contain a
severability of interests clause and cross liability clauses;
(v) tenant's legal liability insurance for the full replacement
cost of the Premises, including loss of their use;
(vi) if applicable, standard owners form automobile insurance
providing third party liability insurance with One Million
Dollars ($1,000,000.00) inclusive limits, and accident benefits
insurance, covering all licensed vehicles owned or operated by
or on behalf of the Tenant; and
(vii) any other form of insurance and with whatever higher limits the
Tenant, the Landlord (acting reasonably) or the Mortgagee
requires from time to time in form, in amounts and for risks
against which a prudent tenant would insure.
(b) The policies specified under Section 9.02(a)(i), (ii) and (iii) will
contain a waiver of any subrogation rights which the Tenant's insurers
may have against all and any of the Landlord, the Owners, the
Mortgagee, the Property Manager and those for whom all and any of them
are or is in law responsible, whether or not the damage is caused by
their act, omission or negligence.
(c) The policies specified under Section 9.02(a)(i), (ii) and (iii) will
contain the Mortgagee's standard mortgage clause and may have
reasonable deductibles of up to three percent (3%) of the amount
insured. If there is a dispute as to the amount of the full
replacement cost, the Landlord will determine it based on standard
replacement cost formulae.
-24-
<PAGE>
(d) Each policy of insurance specified under Section 9.02(a) will (i) be
taken out with insurers acceptable to the Landlord, acting reasonably;
(ii) be in a form satisfactory to the Landlord, acting reasonably;
(iii) be non-contributing with, and will apply only as primary and
not excess to any other insurance available to all and any of the
Landlord, the Owners and the Mortgagee; (iv) not be invalidated with
respect to the interests of all and any of the Landlord, the Owners,
and the Mortgagee by reason of any breach or violation of warranties,
representations, declarations or conditions contained in the policies
and (v) contain an undertaking by the insurers to notify the Landlord,
the Owners and the Mortgagee in writing not less than thirty (30) days
before any material change, cancellation or termination.
(e) Each year on the anniversary of the Commencement Date the Tenant will
deliver certificates of insurance on the Landlord's standard form or
other reasonably comparable form acceptable to the Landlord, duly
executed by the Tenant's insurers evidencing that the required
insurance is in force. No review or approval of any insurance
certificate by the Landlord derogates from or diminishes the
Landlord's rights under this Lease.
(f) If the Tenant fails to maintain any insurance policy specified under
Section 9.02(a), the Landlord shall have the right, but not the
obligation, upon forty-eight (48) hours prior notice, to pay the cost
or premium therefor, and in such event the Tenant will, upon demand,
pay the Landlord's costs in so doing, together with a sum equal to
fifteen percent (15%) of such costs representing the Landlord's
overhead.
9.03 INCREASE IN PREMIUMS
The Tenant will comply promptly with the reasonable loss prevention
recommendations, if any, of the Landlord's insurer pertaining to the
Premises, the Complex or the Building. If the occupancy of the Premises, the
conduct of business in the Premises, or anything done or omitted by the
Tenant results in an increase in premiums for the insurance carried by the
Landlord with respect to the Building or the Complex, the Tenant will pay the
increase to the Landlord immediately on demand. In determining whether the
Tenant is responsible for increased premiums and the amount for which the
Tenant is responsible, a schedule issued by the organization that computes
the insurance rate on the Building or the Complex showing the components of
the rate will be conclusive evidence of the items that make up the rate.
9.04 CANCELLATION OF INSURANCE
The Tenant will not do or permit anything to be done that results in the
cancellation or threatened cancellation or the reduction or threatened
reduction of coverage under any insurance policy on the Building, the Complex
or any part thereof. If the Tenant does or permits anything to be done that
results in the cancellation or threatened cancellation or the reduction or
threatened reduction of coverage under any insurance policy on the Building,
the Complex or any part thereof, the Landlord may, at its option, either
(a) exercise all of its rights and remedies as are contained in Article
15 after providing the Tenant with two (2) business days' prior
written notice during which time the Tenant has failed to remedy the
condition giving rise to the cancellation, threatened cancellation or
reduction or threatened reduction of coverage; or
(b) enter upon the Premises and remedy the condition giving rise to such
cancellation, threatened cancellation or reduction, including the
removal of any offending article, after providing the Tenant with two
(2) business days' prior written notice (or without notice in the case
of an emergency), and in such event the Tenant shall pay the
Landlord's costs immediately upon demand, together with a sum equal to
fifteen (15%) of such costs representing the Landlord's overhead. The
Landlord shall not be liable for any damage or injury caused to any
property of the Tenant or of others located on the Premises as a
result of any such entry. The Tenant agrees that any such entry by
the Landlord pursuant to this Section 9.04 is not a re-entry or a
breach of any covenant for quiet enjoyment contained in this lease or
implied by law.
9.05 LOSS OR DAMAGE
None of the Released Persons is liable for death or injury arising from any
occurrence in, upon, at, or relating to the Building or the Complex or damage
to property of the Tenant or of others located on the Premises or elsewhere,
nor will they be responsible for loss of or damage to, or loss of use of
property of the Tenant or others from any cause, whether or not it results
from (a) the negligence or misconduct of a Released Person, (b) the
operation, faulty operation, interruption or breakdown of any of the base
building systems or other services to be provided by the Landlord under this
Lease, (c) the existence of any Hazardous Substance in any part of the
Building or the Complex or introduced into the Building or the Complex from
any other cause; or (d) any act, omission, negligence or misconduct of any
tenant or occupant of space in the Building or the
-25-
<PAGE>
Complex or property adjacent to the Building or the Complex, or of the public
or any Person in or on the Building or the Complex.
9.06 LIMITATION OF LIABILITY
The Landlord and Tenant acknowledge, confirm and agree to release and waive
any and all claims against the other, their agents, officers, employees,
directors, officers and those for whom they are in law responsible with
respect to all occurrences required to be insured against by each Party under
this Lease or otherwise insured against by them, except to the extent that
such claim arises as a result of the negligence or wilful misconduct of the
other (or their agents, officers, employees, directors and those for whom
they are in law responsible) to a maximum amount limited to each Party's
deductible under their respective policies. The Landlord and the Tenant
further acknowledge and agree that the Tenant or the Landlord, as the case
may be, shall be deemed to be acting as agent or trustee on behalf of and for
the benefit of any and all directors, officers, employees, servants or agents
of the Tenant or the Landlord, as the case may be (and including in the case
of the Landlord, any Mortgagee, owner of the freehold title to the Complex
and the Landlord's property manager).
ARTICLE 10
MAINTENANCE, REPAIRS AND ALTERATIONS BY THE TENANT
10.01 MAINTENANCE AND REPAIRS BY THE TENANT
Except to the extent that the Landlord is specifically responsible therefor
under this Lease and subject to Article 11, the Tenant will, at its sole
cost, repair and maintain the Premises (exclusive of the HVAC System and
other base building mechanical and electrical systems) and all improvements
in or on them in good repair and condition to a standard consistent with the
Operation Standard, subject to reasonable wear and tear. This obligation
includes, but is not limited to:
(a) repainting and redecorating the Premises and cleaning drapes and
carpets at reasonable intervals;
(b) making repairs, replacements and alterations, as needed, including,
without limitation, those that are necessary to comply with all
Applicable Laws;
(c) maintaining first class quality trade fixtures and Leasehold
Improvements; and
(d) removing from the Premises, at its expense when required by the
Landlord (or the Landlord removing from the Premises at the Tenant's
expense) any Hazardous Substance which the Tenant (or others on the
Tenant's behalf) has brought in or incorporated into any part of the
Premises).
10.02 APPROVAL OF THE TENANT'S ALTERATIONS
(a) The Tenant will not (except in the case of minor cosmetic changes)
make alterations, improvements, decorations, repairs or replacements
to the Premises (individually and collectively "Premises Work")
without the Landlord's prior written approval (not to be unreasonably
withheld).
(b) At least thirty (30) days prior to the commencement of any Premises
Work, the Tenant shall submit details of the proposed Premises Work to
the Landlord for its approval, including plans and a reasonable number
(as required by the Landlord) of copies of drawings and specifications
prepared by qualified architects or engineers. The Tenant shall pay
to the Landlord its then current charge and all disbursements incurred
by the Landlord for the review of such drawings and specifications.
The Landlord shall respond to any request for approval within thirty
(30) days of receipt of all required details, drawings and
specifications and provide details of any changes required. The
Tenant shall incorporate such changes into its plans, drawings and
specifications and resubmit them for approval. No Premises Work may
be commenced until the Landlord's final approval has been given over
the Tenant's plans, drawings and specifications and the Tenant shall
not apply for a building permit prior to receiving such approval.
(c) Prior to commencing any Premises Work, the Tenant will provide to the
Landlord a current clearance certificate issued pursuant to the
workers' compensation act of the Province in respect of the contractor
and every sub-contractor which the Tenant proposes to employ or to
permit to do work in respect of the Premises and the Tenant will not
permit any contractor or sub-contractors to do work in respect of the
Premises except for those for which the clearance certificate has been
provided.
-26-
<PAGE>
(d) All Premises Work shall be performed:
(i) at the sole cost of the Tenant;
(ii) by workmen approved by the Landlord (such approval not to be
unreasonable withheld) in advance whose union affiliations are
compatible with the Landlord's and the Property Manager's
contractors and workmen, except that if such Premises Work affects
(1) the structure of the Premises or any of the structural
components, exterior walls or roof of the Building, the Complex or
any part thereof, (2) any of the base building systems, (3) the
aesthetics of the Building or the Complex, or (4) any part of the
Building or the Complex outside the Premises, then the Landlord
may require that the work be performed by the Landlord at the
Tenant's expense (provided same is undertaken at reasonably
competitive rates) and the Tenant will pay to the Landlord, upon
demand, all of such costs together with a fee of fifteen percent
(15%) of such costs representing the Landlord's overhead;
(iii) in a good and workmanlike manner;
(iv) in accordance with the drawings and specifications approved by the
Landlord in advance and where any Premises Work is visible from
Common Elements, the Tenant will comply with all design criteria
for such Premises Work which the Landlord prescribes;
(v) in accordance with all Applicable Laws and requirements of the
Landlord's insurers;
(vi) subject to the reasonable regulations, supervision, control and
inspection of the Landlord; and
(vii) subject to such indemnification against liens and expenses as the
Landlord reasonably requires.
(e) If any Premises Work or installation of Leasehold Improvements depart
from the standard for the Building or the Complex or restrict access by
the Landlord to any of the Common Elements, or restrict the installation
of leasehold improvements by any other tenant in the Complex, then the
Tenant shall be responsible for all costs incurred by the Landlord in
obtaining access to such Common Elements or in installing such other
tenant's leasehold improvements.
(f) Any increase in Taxes or fire or casualty insurance premiums for the
Building or the Complex attributable to any Premises Work shall be borne
by the Tenant.
10.03 REPAIR WHERE THE TENANT IS AT FAULT
If the Complex or any part it requires repair, replacement or alteration, (a)
because of the negligence, fault, omission, want of skill, act or misconduct of
the Tenant or its officers, agents, employees, contractors, invitees or
licensees, (b) due to the requirements of any Applicable Laws relating to the
Tenant's conduct of business, or (c) as a result of the Tenant stopping up or
damaging the heating apparatus, water pipes, drainage pipes or other equipment
or facilities or parts of the Complex, the cost of the repairs, replacements or
alterations plus a sum equal to fifteen percent (15%) of the cost for the
Landlord's overhead will be paid by the Tenant to the Landlord on demand.
10.04 TENANT NOT TO OVERLOAD
The Tenant will not install equipment that overloads the capacity of the HVAC
System or any utility, electrical, or mechanical facility in the Premises or the
Complex and will not, (a) bring into the Premises any utility, electrical, or
mechanical facility or service of which the Landlord does not approve, or (b)
bring upon the Premises anything that might damage them or overload the floors.
If damage is caused to the Premises or to the Complex as a result of the
installation of such equipment or contravention of the provisions of paragraphs
(a) or (b) of this Section by the act, neglect, fault, want of skill, or misuse
of or by the Tenant or its officers, agents, servants, employees, contractors,
invitees, licensees or by any Person having business with the Tenant, the Tenant
will repair the damage or, at the Landlord's option, pay to the Landlord on
demand the cost of repairing the damage plus a sum equal to fifteen percent
(15%) of the costs for the Landlord's overhead.
10.05 REMOVAL AND RESTORATION BY THE TENANT
Excepting the Tenant's trade fixtures, all Premises Work (as defined in Section
10.02(a)), and all Tenant's Work performed by the Tenant or by the Landlord or
others for or on behalf of the Tenant is the Landlord's property on affixation
or installation, without compensation to the Tenant at any time, including upon
the expiry or earlier surrender or termination of this Lease. Except as
otherwise agreed to by the Landlord in
- 27 -
<PAGE>
writing, no Leasehold Improvements, trade fixtures, inventory or equipment
shall be removed from the Premises by the Tenant at any time except as
follows:
(a) provided that the Tenant is not in default under this Lease the Tenant
may, during the Term, in the ordinary course of its business or in the
course of renovation, reconstruction or alteration of the Premises by the
Tenant approved in accordance with this Lease, remove its trade fixtures,
inventory or equipment if they have become excess for the Tenant's
purposes or if the Tenant immediately substitutes new trade fixtures,
inventory and equipment of equal or better value; and
(b) the Tenant shall, at the expiry or earlier surrender or termination of
this Lease, at its sole cost, remove its trade fixtures, inventory and
equipment.
The Tenant shall at its own expense repair any damage caused to the Premises or
to the Complex by the installation or removal of the Leasehold Improvements,
trade fixtures, inventory and equipment, and such obligation survives the expiry
or earlier termination of this Lease. If the Tenant does not remove its trade
fixtures, inventory and equipment within three (3) days after the expiry or
earlier surrender or termination of this Lease, such trade fixtures, inventory
and equipment shall be deemed conclusively to have been abandoned by the Tenant
and may be appropriated, sold, destroyed or otherwise disposed of by the
Landlord without notice or obligation to compensate the Tenant or to account
therefore, and the Tenant shall pay to the Landlord, on demand, all costs
incurred by the Landlord in connection therewith. Upon expiry or earlier
surrender or termination of this Lease the Tenant will leave the Premises in the
same condition as it was required to keep them in during the Term, will deliver
all keys for the Premises to the Landlord at the place then fixed by the payment
of Rent, and will provide the Landlord with combinations of all locks, safes and
vaults in the Premises.
10.06 TENANT TO DISCHARGE ENCUMBRANCES
The Tenant will ensure that no construction or other lien (similar or
otherwise), and no charge, mortgage, security interest, floating charge,
debenture, or other encumbrance (collectively, "Encumbrance") is registered or
filed against (a) the Complex or any part of it, or (b) the Landlord's interest
in the Complex or any part of it, or (c) the Tenant's interest in the Premises,
by any Person claiming by, through, under, or against the Tenant or its
contractors or subcontractors. If the Tenant defaults under this section the
Landlord may, in addition to its available remedies under Article 15, discharge
the lien or Encumbrance upon two (2) business days prior written notice to the
Tenant by paying the amount claimed to be due into court and the amount paid, as
well as the costs and expenses (including solicitor's fees on a solicitor and
client basis) incurred as the result of the registration or filing of the lien
or Encumbrance, including the discharge of the lien or Encumbrance, will be paid
by the Tenant to the Landlord on demand.
ARTICLE 11
DAMAGE AND DESTRUCTION AND EXPROPRIATION
11.01 INTERPRETATION OF ARTICLE 11
In this Article:
(a) "Damage" means damage (including but not limited to, smoke and water
damage and damage that amounts to destruction) that results from any
cause and "Damaged" has a corresponding meaning;
(b) "Date of Taking" means the date on which the expropriating authority
takes possession of the Complex, the Building, the Premises, or any part
thereof, as the case may be;
(c) "Expropriated" means expropriated by a governmental authority or
transferred, conveyed or dedicated in contemplation of a threatened
expropriation and "Expropriation" has a corresponding meaning;
(d) "Landlord's Work" means the work to be performed by the Landlord pursuant
to Section 2.01 of Schedule "C";
(e) "Substantial Completion" has the meaning set out in Section 1.03(a) of
Schedule "C";
(f) "Tenant's Work" means the work to be performed by the Tenant pursuant to
Section 3.02 of Schedule "C";
- 28 -
<PAGE>
(g) "Usable" means usable by the Tenant for the purpose contemplated by this
Lease.
11.02 DAMAGE TO PREMISES
(a) Subject to Section 11.03, if the Premises are Damaged and the repair can,
in the opinion of the Architect, be Substantially Completed under
Applicable Laws within one hundred and eighty (180) days from the date of
such Damage (employing normal construction methods without overtime or
other premiums), the Landlord will, to the extent the Damage results from
a peril against which the Landlord is required to insure or otherwise
insures, promptly repair or reconstruct the Premises to the extent of its
obligations under Section 2.01 of Schedule "C". If part or all of the
Premises is not Usable because of the Damage, then except where the
Landlord's Work and Tenant's Work (as defined below in this Section
11.02(a)) take less than ten (10) days to complete after the date of the
Damage (in which case no Rent abatement shall occur), the Minimum Rent
(but not Additional Rent) will abate in the proportion that the Rentable
Area of that part of the Premises which is not Usable (as determined by
the Architect) is to the Rentable Area of the whole of the Premises, from
the date of the Damage until the earlier of (i) the date when the whole
of the Premises is Usable again, or (ii) thirty (30) days after
Substantial Completion of the Landlord's Work. When the Landlord
notifies the Tenant that it has completed enough of the Landlord's Work
to enable the Tenant to start its work, the Tenant will diligently
perform all repairs to the Premises which are its responsibility under
Section 10.01 of this Lease and all other work required to fully restore
the Premises for use in the Tenant's business (including, without
limitation, the work described in Section 3.02 of Schedule "C" but
excluding Landlord's Work) (the "Tenant's Work") and will reopen the
whole of the Premises for business as soon as possible but in any event
within thirty (30) days after the Landlord's notice. All of the
provisions of Schedule "C" will apply except for any fixturing period or
rent free period and no capital allowance, inducement to lease, or other
payment that was made to the Tenant at the time of, or in connection with
the original construction of the Premises or the Tenant's Leasehold
Improvements will be paid by the Landlord to the Tenant.
(b) Subject to Section 11.03, if the Premises are Damaged and the repair
cannot, in the opinion of the Architect, be Substantially Completed under
Applicable Laws within one hundred and eighty (180) days from the date of
such Damage (employing normal construction method without overtime or
other premiums), then either the Landlord or the Tenant may, by written
notice provided to the other within thirty (30) days after receipt of the
Architect's opinion, terminate this Lease on a date to be effective no
later than thirty (30) days after delivery of such notice. All Rent will
abate as of the effective date of termination and the Tenant will have no
claim, action or demand against the Landlord as a result of or arising
from any such early termination of this Lease. Notwithstanding the
foregoing, the Tenant shall not be entitled to exercise its right of
termination set out in this Section 11.02(b) if the Damage resulted from
or was occasioned by any act, misconduct, negligence, or omission of the
Tenant, its officers, servants, employees, contractors, invitees,
licensees or Persons for whom the Tenant is responsible at law or over
whom the Tenant may be reasonably considered to exercise control.
11.03 DAMAGE TO THE BUILDING
(a) Notwithstanding Section 11.02, if:
(i) twenty-five percent (25%) or more of the Rentable Area of the
Building (meaning the aggregate Rentable Area of all individual
Leasable Premises located within the Building, whether rented or
not) is Damaged (whether or not the Premises are Damaged); or
(ii) portions of the Complex which affect access or services essential
thereto are Damaged (whether or not the Premises are Damaged); and
the Damage cannot, in the opinion of the Architect, be substantially
repaired under Applicable Laws within one hundred and eighty (180) days
from the date of such Damage (employing normal construction methods
without overtime or other premiums), then the Landlord may, by written
notice to the Tenant given within ninety (90) days after the date of
Damage, terminate this Lease effective thirty (30) days after receipt by
the Tenant of the notice and all Rent will abate as of the effective date
of termination. The Tenant will have no claim, action, or demand against
the Landlord as a result of or arising from any such early termination of
this Lease.
(b) If the Complex, the Building or any part thereof is Damaged to the extent
described in Section 11.03(a)(i) or (ii) and the Landlord does not
terminate this Lease, then the Landlord will promptly rebuild or repair
or cause to be rebuilt or repaired the Complex or the Building to the
extent of the Landlord's obligations under the leases for Leasable
Premises that are in force at the time but the Landlord may use plans and
specifications and working drawings that are different from those used in
the original construction of the Complex, the Building or any part
thereof and the rebuilt or repaired Complex or Building may be different
from the Complex or Building before the Damage.
- 29 -
<PAGE>
11.04 EXPROPRIATION OF THE COMPLEX, THE BUILDING OR THE PREMISES
If all of the Premises is Expropriated (whether or not in conjunction with an
Expropriation of any part of the Complex or the Building), then this Lease shall
terminate on the Date of Taking. If a portion of the Complex, the Building or
the Premises is Expropriated, then:
(a) if in the reasonable opinion of the Landlord a substantial alteration or
reconstruction of the Complex or the Building is necessary or desirable
as a result of the Expropriation, whether or not the Premises are or may
be affected, the Landlord may, upon not less than thirty (30) days prior
written notice to the Tenant, terminate this Lease; and
(b) if more than one-third of the Rentable Area of the Premises is
Expropriated (whether or not alone or in conjunction with an
Expropriation of all or a part of the Complex or the Building), either
the Landlord or the Tenant may, upon not less than thirty (30) days prior
written notice to the other, terminate this Lease.
If this Lease is so terminated, all Rent will abate as of the effective date of
termination (provided, however, that the effective date of termination may not
occur later than the Date of Taking) and the Tenant will have no claim, action
or demand against the Landlord as a result of or arising from any such early
termination of this Lease. If a portion of the Premises has been Expropriated
and this Lease has not been terminated in accordance with this Section 11.04,
then the Rentable Area of the Premises shall be deemed to be amended as of the
Date of Taking by reducing the Rentable Area of the Premises by the portion so
Expropriated, and Rent shall be adjusted accordingly.
11.05 AWARDS
The Landlord and the Tenant will co-operate with each other if there is an
Expropriation of all or part of the Premises, the Complex or the Building so
that each may receive the maximum award that it is entitled to at law. To the
extent, however, that a part of the Complex or the Building other than the
Premises is Expropriated, the full proceeds that are paid or awarded as a result
will belong solely to the Landlord, and the Tenant will assign to the Landlord
any rights that it may have or acquire in respect of the proceeds or awards and
will execute the documents that the Landlord reasonably requires in order to
give effect to this intention. Whether or not the Lease is terminated, the
Tenant will have no claim, action, right of action or any other demand against
the Landlord as a result of or arising from the Expropriation of all or any part
of the Premises, the Complex or the Building.
11.06 ARCHITECT'S CERTIFICATE
A certificate of the Architect will bind the parties concerning any of the
matters that need to be determined under this Article 11.
ARTICLE 12
ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS
12.01 TRANSFERS
(a) For the purpose of this Lease, "Transfer" means (i) an assignment, sale,
conveyance, sublease, disposition or licensing of this Lease or the
Premises or any part of them, or any interest in this Lease (whether or
not by operation of law) or in a partnership that is a Tenant under this
Lease; (ii) a mortgage, charge, lien, debenture (floating or otherwise)
or other encumbrance of this Lease or the Premises or any part of them or
of any interest in this Lease or of a partnership or partnership interest
where the partnership is a Tenant under this Lease; (iii) a parting with
or sharing of possession of all or part of the Premises; which results
in a change in the effective voting control of the Tenant. "Transferor"
and "Transferee" have meanings corresponding to the definition of
"Transfer" set out above (and for the purpose of a Transfer described in
Section 12.01(a)(iv) the Transfer is the Person that has effective voting
control before the Transfer and the Transferee is the Person that has
effective voting control after the Transfer).
(b) The Tenant will not effect a Transfer of the Lease as defined in Section
12.01(a)(ii) without the consent of the Landlord, which consent may be
unreasonably withheld.
- 30 -
<PAGE>
(c) Subject to Section 12.01(b), the Tenant shall not effect or permit any
Transfer without the prior written consent of the Landlord in each
instance, which consent shall not be unreasonably withheld except that
despite any statutory provision or law (including, without limitation,
the applicable landlord and tenant legislation in force in the Province)
and without limiting the grounds on which a Transfer may be refused, the
Landlord may refuse to give its consent if:
(i) the Tenant is then in default under this Lease or has during the
Term failed to pay all Rent punctually as and when due or failed
to observe or perform all of its other obligations pursuant to
this Lease;
(ii) covenants, restrictions or commitments given by the Landlord to
other tenants or occupants or prospective tenants or occupants of
the Complex, or to Mortgagees, the Owners or other parties,
regardless of when given, prevent or inhibit the Landlord from
giving its consent to the Transfer;
(iii) in the Landlord's reasonable opinion, the financial background,
business history or capability of the proposed Transferee is not
satisfactory;
(iv) the proposed Transfer is to an existing tenant of the Complex;
(v) the proposed Transferee is in default under any lease with the
Landlord or its affiliates (as that term is used in Section
12.01(a) above) or there is a history of defaults under commercial
leases by the proposed Transferee or by companies or partnerships
in which the proposed Transferee was a principal shareholder or
partner at the time of the defaults;
(vi) the use of the Premises by the proposed Transferee, in the
Landlord's opinion arrived at in good faith, could be inconsistent
with the image and standards of the Building or the Complex or
expose any occupants of the Complex to risk of harm, damage or
interference with their use and enjoyment thereof; or
(vii) the Landlord does not receive sufficient information from the
Tenant or the proposed Transferee as required under this Section
12.01(c) to enable it to make a determination concerning the
matters set out above.
(d) Section 12.01(c) does not apply to a Transfer that occurs on the death
of the Transferor.
(e) If the Tenant intends to effect a Transfer, the Tenant shall give prior
notice to the Landlord of such intent specifying the identity of the
proposed Transferee, the type of Transfer contemplated, and the financial
and other terms of the Transfer, and shall provide such financial,
business or other information relating to the proposed Transferee and its
principals as the Landlord or any Mortgagee requires, together with
copies of all documents which record the particulars of the proposed
Transfer. The Landlord shall, within thirty (30) days after having
received such notice and all requested information, notify the Tenant
either that:
(i) it consents or does not consent to the Transfer in accordance with
the provisions of this Article 12;
(ii) it consents on such terms and condition in addition to Section
12.03 as the Landlord, in its sole opinion, deems fit; or
(iii) it elects to terminate this Lease as to the whole or the part of
the Premises affected by the proposed Transfer in accordance with
Section 12.02.
(f) The Landlord shall have no liability for or in connection with any claims
made by the Tenant as a result of the Landlord withholding its consent to
any Transfer or terminating this Lease pursuant to Section 12.02. In
cases where the Landlord has withheld its consent, the Tenant agrees that
its only remedy will be to bring an application for a declaration that
such Transfer should be allowed.
12.01A
Notwithstanding the foregoing, so long as the Tenant is not then in default
under the terms of this Lease, the Tenant shall have the right, without the
Landlord's consent, but upon prior
- 31 -
<PAGE>
written notice provided to the Landlord within fifteen (15) days of the
effective date of the Transfer, to assign this Lease or sublet the whole of
the Premises to an "affiliate" or "associate" of the Tenant (as defined in
the Canada Business Corporations Act) (the "Permitted Transferee").
12.02 LANDLORD'S RIGHT TO TERMINATE
If the Landlord elects to terminate this Lease as to the whole or the part of
the Premises affected by the proposed Transfer, it shall stipulate in its notice
the termination date, which date will not be less than thirty (30) days and not
more than ninety (90) days following delivery of such notice. If the Landlord
elects to terminate this Lease, the Tenant shall notify the Landlord within ten
(10) days thereafter of the Tenant's intention either to refrain from such
Transfer or to accept the termination of this Lease as to the whole or the part
thereof in respect of which the Landlord has exercised its rights. If the Tenant
fails to deliver such notice within such ten (10) days or notifies the Landlord
that it accepts the Landlord's termination, this Lease will, as to the whole or
affected part of the Premises, as the case may be, be terminated on the date of
termination stipulated by the Landlord in its notice of election to terminate.
If the Tenant notifies the Landlord within ten (10) days that it intends to
refrain from such Transfer, then the Landlord's election to terminate this Lease
shall become void.
12.03 TERMS AND CONDITIONS RELATING TO TRANSFERS
The following terms and conditions apply in respect of all Transfers:
(a) the consent by the Landlord is not a waiver of the requirement for
consent to subsequent Transfers;
(b) the Landlord may apply amounts collected from the Transferee to any
unpaid Rent payable under this Lease;
(c) no acceptance by the Landlord of any payments by a Transferee is (i) a
waiver of the requirement for the Landlord to consent to the Transfer,
(ii) the acceptance of the Transferee as Tenant, or (iii) a release of
the Transferor from its obligations under this Lease;
(d) the Transferee will execute, prior to the Transfer, an agreement directly
with the Landlord agreeing to be bound by this Lease as if the Transferee
had originally executed this Lease as Tenant but the Transferor shall
remain jointly and severally liable with the Transferee for the
fulfilment of all obligations of the Tenant under this Lease during the
remainder of the Term and all renewals or extensions thereof, the whole
without novation or derogation of any kind, and without benefit of
division and discussion, and, if required by the Landlord, the Transferor
will execute an Indemnity Agreement on the Landlord's standard form to
give full force and effect to the foregoing;
(e) the Transferor, unless the Transferee is a sub-tenant of the Tenant, will
retain no rights under this Lease in respect of obligations to be
performed by the Landlord or in respect of the use or occupation of the
Premises after the Transfer;
(f) the minimum rent and additional rent payable by the Transferee shall not
be less than the Minimum Rent and Additional Rent payable by the Tenant
under this Lease as at the effective date of the Transfer (including any
increases provided for in this Lease) and if it exceeds the Minimum Rent
and Additional Rent payable under this Lease, the amount of the excess
shall be paid by the Transferor to the Landlord in addition to all Rent
payable under this Lease and
such excess shall be deemed to be Additional Rent. If the Transferor
receives from any Transferee either directly or indirectly any
consideration other than minimum rent or additional rent for such
Transfer, either in the form of cash, goods or services, the Transferor
will pay such excess to the Landlord in addition to all Rent payable
under this Lease and such excess rent shall be deemed to be Additional
Rent;
(g) if the Transferee pays or gives or covenants to pay or give to the
Transferor money or other value that is reasonably attributable to the
desirability of the location of the Premises or to Leasehold Improvements
that are owned by the Landlord or for which the Landlord has paid in
whole or in part, then at the Landlord's option, the Transferor will pay
to the Landlord such money or other value in addition to all Rent payable
under this Lease and all amounts shall be deemed to be further Additional
Rent;
(h) if the Transfer is one which requires the Landlord's consent, then if
such Transfer is not completed within sixty (60) days of the date of
such consent, the Landlord may, at its option, withdraw its consent;
- 32 -
<PAGE>
(i) all Rent for the month in which the Transfer occurs shall be paid in
advance by the Transferor so that the Landlord will not be required to
accept partial payments of Rent for such month from either the
Transferor or Transferee;
(j) all documents relating to a Transfer or the Landlord's consent will be
prepared by the Landlord or its solicitors and all of the processing and
legal costs of the Landlord will be paid to the Landlord by the Tenant on
demand;
(k) if this Lease is repudiated, disaffirmed, disclaimed, surrendered (except
with the consent of the Landlord) or terminated by a Transferee, by any
trustee in bankruptcy of a Transferee, or by a court representative, the
original Tenant named in this Lease or any Transferee (except the
bankrupt or insolvent Transferee) will be considered, upon notice (which
the Landlord may elect to give to the Tenant or any Transferee within
thirty (30) days of the repudiation, disaffirmation, disclaimer,
surrender or termination), to have entered into a lease (the "Remainder
Period Lease") with the Landlord, containing the same terms and
conditions as this Lease (it being agreed that the commencement date of
the Remainder Period Lease will be considered to be the date of the
repudiation, disaffirmation, disclaimer, surrender or termination, and
the expiration date of the Remainder Period Lease shall be the date on
which this Lease would have expired had the repudiation, disaffirmation,
disclaimer, surrender or termination not occurred); and
(l) if the Transfer is a sublease, that the Transferee agrees to waive or
release any statutory right to retain the unexpired portion of the term
of its sublease or the Term of this Lease or to enter into any lease or
other agreement directly with the Landlord for the Premises or any part
of it or to otherwise remain in possession of the Premises or any part of
it where this Lease is terminated, surrendered, repudiated, disclaimed or
otherwise cancelled, or is assigned, sold, disposed of or otherwise dealt
with.
12.04 NO ADVERTISING OF THE PREMISES
The Tenant shall not offer or advertise the whole or any part of the Premises or
this Lease for the purpose of a Transfer and shall not permit any broker or
other person to do so unless the complete text and format of such advertisement
is approved in writing by the Landlord. However, in no event will the
advertisement contain any reference to the rental rate for the Premises.
12.05 SALES AND OTHER DISPOSITIONS BY THE LANDLORD
Nothing in this Lease shall restrict the right of the Landlord to sell, convey,
assign or otherwise deal with the Complex or any part of it, subject only to the
rights of the Tenant under this Lease. A sale, transfer or conveyance of the
Complex or any part of it by the Landlord or an assignment by the Landlord of
this Lease or any interest of the Landlord under it shall operate to release the
Landlord from liability from and after the effective date thereof for all of the
covenants, terms and conditions of this Lease, express or implied, except as
such (a) may relate to the period prior to such effective date and (b) are not
assumed by the purchaser, transferee or disposee, and the Tenant shall
thereafter look solely to the Landlord's successor in interest in and to this
Lease.
ARTICLE 13
ACCESS AND ALTERATIONS
13.01 RIGHT OF ENTRY
(a) It is not a re-entry or a breach of quiet enjoyment if the Landlord and
its representatives enter the Premises at reasonable times after one (1)
business days' notice (but if the Landlord determines there is an
emergency, no notice is required) (i) to examine them, (ii) to make
repairs, alterations, improvements or additions to the Premises, the
Complex, the Building or adjacent property, (iii) to conduct an
environmental audit of the Premises or any part of the Complex or the
Building, or (iv) to carry out any of its rights or obligations under
this Lease, and the Landlord and its representatives may take material
into and on the Premises for those purposes. This right extends to (and
is not limited to) the pipes, conduits, wiring, ducts, columns and other
parts of the Common Elements in the Premises. Rent will not abate or be
reduced while the repairs, alterations, improvements or additions are
being made and the Landlord is not liable for any damage, injury or death
caused to any Person or to the property of the Tenant or others located
on the Premises as a result of the entry, regardless of how the damage,
injury or death is caused. The Landlord will take reasonable steps to
minimize any interruption of the Tenant's business in exercising its
rights under this Section 13.01(a).
- 33 -
<PAGE>
(b) The Landlord may enter the Premises at reasonable times to show them to
prospective purchasers, tenants or Mortgagees. During the twelve (12)
months before the expiry of the Term, the Landlord may display on the
Premises "For Rent" or "For Sale" notices of reasonable size and number,
and in reasonable locations.
ARTICLE 14
STATUS STATEMENTS, SUBORDINATION AND ATTORNMENT
14.01 STATUS STATEMENTS
Within ten (10) days after each request by the Landlord, the Tenant will deliver
to the Landlord, on a form supplied by the Landlord, a status statement or
certificate addressed to any proposed Mortgagee, purchaser or other disposee of
part or all of the Complex and to the Landlord, stating details of the tenancy
and confirming as correct specific information pertaining to the tenancy such
as, by way of example:
(a) that this Lease is in full force and effect, except only for any
modifications that are set out in the statement certificate;
(b) the commencement and expiry dates of this Lease;
(c) that the Tenant is in possession of the Premises and is paying Rent as
provided in this Lease;
(d) the date to which Rent has been paid under this Lease and the amount of
any prepaid Rent or any deposits held by the Landlord;
(e) whether there are any set-offs, defences or counterclaims against
enforcement of the Tenant's obligations under this Lease;
(f) that there is not, any uncured default on the part of the Landlord, or,
if there is a default, the certificate will state the particulars;
(g) that the Premises are free from any construction deficiencies or, if
there are any, the certificate will state the particulars);
(h) with reasonable particularity, details concerning the Tenant's and any
Indemnifier's financial standing and corporate organization as the
Landlord or the Mortgagee may reasonably require; and
(i) any other information or statement that a proposed Mortgagee, purchaser
or disposee may reasonably require.
Any such statement may be relied upon by any prospective transferee or Mortgagee
of all or any portion of the Complex or any assignee of any such Person. The
Landlord acknowledges that any statement or other information acquired hereunder
relating to the Tenant's business is confidential and shall not use such
statement or other information except in respect of any sale, financing
or re-financing of the Complex.
14.02 SUBORDINATION AND ATTORNMENT
(a) This Lease is and will remain subordinate to every mortgage, charge,
trust deed, financing, refinancing or collateral financing, present or
future, and the instruments of, as well as the charge or lien resulting
from all or any of them and any renewals or extensions of them from time
to time (collectively, an "Encumbrance") against the Premises, the
Complex or the Building and the Tenant will, on request, sign any
document requested by the Landlord or the Owners to confirm the
subordination of this Lease to any Encumbrance and to all advances made
or to be made on the security of the Encumbrance. The Tenant will also,
if the Landlord requests it to do so, attorn to the holder of any
Encumbrance, to the Owners or to any purchaser, transferee or disposee of
the Complex or the Building or of an ownership or equity interest in the
Complex or the Building and the Tenant will, on request, sign any
document requested by the Landlord or the Owners to confirm such
attornment.
(b) If possession is taken under, or any proceedings are brought for the
foreclosure of, or if a power of sale is exercised resulting from an
Encumbrance the Tenant will attorn to the Person that so takes possession
if that Person requests it and will recognize that Person as the Landlord
under this Lease.
(c) The form and content of any document confirming or effecting the
subordination and attornments provided for in this Section 14.02 will be
that required by the Landlord or the holder of the
- 34 -
<PAGE>
Encumbrance in each case, and each such document will be delivered
by the Tenant to the Landlord within ten (10) days after the Landlord
requests it.
(d) Upon the written request and at the sole expense of the Tenant, the
Landlord shall use reasonable efforts to obtain written assurances from
any Mortgagee with an interest in the Complex or the Building prior to
that of the Tenant to the effect that so long as the Tenant is not in
default under this Lease such Mortgagee will recognize the Tenant's
rights under this Lease and not disturb the Tenant's occupancy of the
Premises.
14.03 ATTORNEY
The Tenant will execute and deliver whatever instruments and certificates are
requested by all or any of the Landlord, the Owners and any Mortgagee to give
effect to Sections 14.01 and 14.02. If the Tenant has not executed whatever
instruments and certificates it is required to execute within ten (10) days
after the Landlord's request, the Landlord may, at its option, avail itself of
all remedies under Article 15 without the requirement to provide further notice
and without incurring any liability.
ARTICLE 15
DEFAULT
15.01 EVENTS OF DEFAULT
An "Event of Default" occurs when:
(a) the Tenant defaults in the payment of Rent or Rental Taxes and fails to
remedy the default within five (5) days after written notice;
(b) the Tenant commits a breach that is capable of remedy (other than a
breach in the payment of Rent or Rental Taxes) and fails to remedy the
breach within ten (10) days after written notice to the Tenant specifying
particulars of the breach and requiring the Tenant to remedy the breach
(or if the breach would reasonably take longer than ten (10) days to
remedy, fails to start remedying the breach within the ten (10) day
period or fails to continue diligently and expeditiously to complete the
remedy);
(c) the Tenant commits a breach of this Lease that is not capable of remedy
and has received written notice specifying particulars of the breach;
(d) the Tenant or a Person carrying on business in any part of the Premises
or any Indemnifier becomes bankrupt or insolvent or makes application for
relief from creditors under the provisions of any statute for bankrupt or
insolvent debtors or makes any proposal, assignment or arrangement with
its creditors;
(e) steps are taken or proceedings are instituted for the dissolution,
winding-up or other termination of the Tenant's or the Indemnifier's
existence or for the liquidation of their respective assets;
(f) a receiver or a receiver and manager is appointed for all or a part of
the business or assets of the Tenant, or of any Indemnifier or of another
Person carrying on business in the Premises;
(g) the Tenant or any Indemnifier makes or attempts to make a sale in bulk of
any of their respective assets other than in compliance with the Bulk
Sales Act or in conjunction with a Transfer approved by the Landlord;
(h) a writ of execution is issued against the Tenant and remains outstanding
for more than ten (10) days or this Lease or any of the Tenant's assets
on the Premises are taken or seized under a writ of execution, an
assignment, pledge, charge, debenture or other security instrument and
such writ, assignment, pledge, charge, debenture or other security
instrument is not stayed or vacated within fifteen (15) days after the
date of such taking;
(i) the Tenant effects or attempts to effect a Transfer that is not permitted
by this Lease;
(j)
- 35 -
<PAGE>
(k) the Tenant commits a breach under either or both of Sections 8.05 and
8.06 of this Lease;
(l) the Indemnifier, if any, fails to execute and deliver to the Landlord
before the commencement of the Fixturing Period an indemnity agreement in
the form attached hereto as Appendix "A" (the "Indemnity Agreement"), or
any Indemnity Agreement is terminated or the Indemnifier's obligations
thereunder are reduced, modified or otherwise limited except by way of
express consent of the Landlord; or
(m) an Event of Default occurs under any other lease or agreement relating to
other premises leased to or occupied by the Tenant in the Complex or in
any other property where the Landlord or its affiliates (as that term is
defined in Section 12.01(a)) is the landlord.
15.02 REMEDIES UPON AN EVENT OF DEFAULT
(a) Upon the occurrence of an Event of Default the full amount of the current
months' Rent together with the next three (3) months' instalments of
Minimum Rent, Rental Taxes and Additional Rent will immediately become
due and payable and the Landlord shall have the following rights and
remedies without prejudice to any other rights which it has under this
Lease or at law:
(i) to terminate this Lease and re-enter and repossess the Premises
and remove all Persons and property from the Premises;
(ii) seize, sell, dispose of or store all or any property on the
Premises, all at the Tenant's expense as the Landlord considers
appropriate, all without notice to the Tenant, without legal
proceedings and without liability for loss or damage and without
prejudice to the rights of the Landlord to recover damages and
all other amounts which the Landlord is entitled to claim by
reason of the Tenant's breach of this Lease; and
(iii) to enter the Premises as agent of the Tenant but without
terminating this Lease in order to relet the Premises or a part of
them for whatever term or terms (which may be for a term extending
beyond the Term) and at whatever Rent and upon whatever other
terms the Landlord considers advisable. No repossession of the
Premises by the Landlord will be construed as an election by the
Landlord to terminate this Lease unless a written notice of
termination is given to the Tenant. On each such reletting, the
Rent received from the reletting shall be applied as follows:
first, to the payment of any expenses incurred by the Landlord
with respect to any such reletting (including brokerage fees,
solicitors fees and the costs of any alterations or repairs needed
to facilitate the reletting); second, to the payment of any
amounts owed to the Landlord by the Tenant that are not Rent or
Rental Taxes; third, to the payment of Rent and Rental Taxes in
arrears, and the residue, if any, will be held by the Landlord and
applied to payment of future Rent and Rental Taxes as it becomes
due and payable. If the Rent and Rental Taxes received from a
reletting during a month are less than that to be paid by the
Tenant during that month, the Tenant will pay the deficiency to
the Landlord (which deficiency will be calculated and paid monthly
in advance on or before the first day of every month). If the
Landlord repossesses the Premises in accordance with this Section
15.02(a)(iii), the Landlord may remove all property from the
Premises, sell or dispose of it as the Landlord deems fit or store
it at the Tenant's cost, without notice, without legal
proceedings, without liability for loss or damage and without
prejudice to the Landlord's rights to recover damages and all
other amounts which the Landlord is entitled to claim by reason of
the Tenant's breach of this Lease. If the Landlord relets without
terminating, it may afterwards elect to terminate this Lease for
the previous default;
(b) Upon the occurrence of an Event of Default, the Landlord shall be
entitled to recover from the Tenant all damages, costs and expenses
incurred by the Landlord as a result of the default by the Tenant
including, without limitation, all arrears of Rent, all legal fees on a
solicitor and client basis (including, without limitation, those incurred
in connection with recovery of possession of the Premises or in
connection with the recovery of Rent or Rental Taxes) and, if this Lease
is terminated by the Landlord, any deficiency between those amounts which
would have been payable by the Tenant for the portion of the Term
following any termination and the net amounts actually received by the
Landlord during such period of time with respect to the Premises.
15.03 LANDLORD MAY CURE THE TENANT'S DEFAULT
If the Tenant defaults in the payment of money that it is required under this
Lease to pay to a third party, the Landlord may, after giving five (5) days
prior written notice to the Tenant, pay all or any part of the amount payable.
If the Tenant defaults under this Lease (except for a default in the payment of
Rent or Rental Taxes), the Landlord may, except in the case of an emergency
where no notice is required, perform
- 36 -
<PAGE>
or cause to be performed all or part of what the Tenant failed to perform
after giving the appropriate notice provided for in Section 15.01 of this
Lease or such lesser notice as is expressly provided for elsewhere in this
Lease, and may enter the Premises and do such things that it considers
necessary for that purpose. The Landlord will have no liability to the
Tenant for loss or damages resulting from its action or entry on the
Premises and the Tenant will pay to the Landlord on demand the Landlord's
expenses plus fifteen percent (15%) of those expenses for the Landlord's
overhead.
15.04 WAIVER OF EXEMPTION FROM DISTRESS
Notwithstanding any Applicable Laws or any legal or equitable rule of law, none
of the inventory, furniture, equipment or other property of the Tenant that is,
or was at any time, owned by the Tenant is exempt from levy by distress for Rent
except for equipment or facilities which in each case contain intellectual
property which is exempt.
15.05 APPLICATION OF MONEY
The Landlord may apply money received from or due to the Tenant against money
due and payable under this Lease. The Landlord may impute any payment made by
or on behalf of the Tenant towards the payment of any amount due and owing by
the Tenant at the date of such payment, regardless of any designation or
imputation by the Tenant.
15.06 REMEDIES GENERALLY
The remedies under this Lease are cumulative and no remedy is exclusive or
dependent upon any other remedy. Any one or more remedies may be exercised
generally or in combination. The specifying or use of a remedy under this Lease
does not limit the right to use other remedies available under this Lease or
generally at law. Except as otherwise expressly set out in this Lease, the
Tenant's only remedy in respect of any breach by the Landlord under this Lease
shall be for damages.
ARTICLE 16
MISCELLANEOUS
16.01 RULES AND REGULATIONS
The Landlord, acting reasonably, may adopt rules and regulations which may
differentiate between different types of businesses in the Building and in the
Complex. Each rule and regulation, as revised from time to time, forms part of
this Lease as soon as the rule, regulation or revision is made known to the
Tenant. The Tenant will comply with each rule and regulation and each revision
thereof. No rule or regulation, however, will contradict the terms, covenants
and conditions of this Lease. The Landlord is not responsible to the Tenant for
the non-observance of a rule or regulation by any other tenant of Leasable
Premises or occupant of the Complex or of the terms, covenants or conditions of
any other lease of Leasable Premises.
16.02 OVERHOLDING - NO TACIT RENEWAL
If the Tenant remains in possession of the Premises after the Term with the
consent of the Landlord but without executing a new lease, there is no tacit
renewal of this Lease despite any statutory provision or legal presumption to
the contrary. The Tenant will occupy the Premises on a month-to-month basis
only on the same terms and conditions set out in this Lease except for any right
of extension or renewal and except that the rate per square foot of Minimum Rent
shall be equal to one hundred and fifty percent (150%) of the rate per square
foot of Minimum Rent which was payable by the Tenant as at the last day of the
Term.
16.03 RELATIONSHIP OF PARTIES - NO PARTNERSHIP OR AGENCY
Nothing contained in this Lease or as a result of any acts of the parties hereto
will be deemed to create any relationship between the parties hereto other than
that of Landlord, Tenant and, if applicable, Indemnifier.
16.04 ACCORD AND SATISFACTION
Payment by the Tenant or receipt by the Landlord of less than the required
monthly payment of Minimum Rent is on account of the earliest stipulated Minimum
Rent. An endorsement or statement on a cheque or letter accompanying a cheque or
payment as Rent is not an acknowledgment of full payment or an accord and
satisfaction, and the Landlord may accept and cash the cheque or payment without
prejudice to its right to recover the balance of the Rent or pursue its other
remedies.
16.05 TENANT PARTNERSHIP
- 37 -
<PAGE>
If the Tenant is a partnership each Person who is a member of the partnership,
and each Person who becomes a member of a successor of the partnership, is
liable jointly and severally as Tenant under this Lease and will continue to be
liable after that Person ceases to be a member of the partnership or a successor
of the partnership and after the partnership ceases to exist.
16.06 WAIVER
The waiver by the Landlord or the Tenant of a default under this Lease is not a
waiver of any subsequent default. The Landlord's acceptance of Rent after a
default is not a waiver of any preceding default under this Lease even if the
Landlord knows of the preceding default at the time of acceptance of the Rent.
No term, covenant or condition of this Lease will be considered to have been
waived by the Landlord or the Tenant unless the waiver is in writing. The Tenant
waives any statutory or other rights in respect of abatement, set-off or
compensation in its favour that may exist or come to exist in connection with
Rent.
16.07 SUCCESSORS
The rights and obligations under this Lease extend to and bind the successors
and assigns of the Landlord and, if Article 12 is complied with, the heirs,
executors, administrators and permitted successors and permitted assigns of the
Tenant. If there is more than one Tenant, or more than one Person comprising the
Tenant, each is bound jointly and severally by this Lease.
16.08 FORCE MAJEURE
Despite anything contained in this Lease to the contrary, if the Landlord or the
Tenant is, in good faith, delayed or prevented from doing anything required by
this Lease because of a strike, labour trouble, inability to get materials or
services, power failure, restrictive governmental laws or regulations, riots,
insurrection, sabotage, rebellion, war, act of God, or any other similar reason,
that is not the fault of the party delayed, the doing of the thing is excused
for the period of the delay and the party delayed will do what was delayed or
prevented within the appropriate period after the delay. The preceding sentence
does not excuse the Tenant from payment of Rent or the Landlord from payment of
amounts that it is required to pay, in the amounts and at the times specified in
this Lease.
16.09 NOTICES
Notices, demands, requests or other instruments under this Lease will be
delivered or sent by facsimile or registered mail postage prepaid and addressed
(a) if to the Landlord, as indicated in Section 1.01(b) of this Lease or to such
other Person at any other address that the Landlord designates by written
notice, and (b) if to the Tenant, at the Premises, or, at the Landlord's option,
to the address set out in Section 1.01(c). A notice, demand, request or consent
will be considered to have been given or made on (i) the day that it is
delivered, (ii) the date of transmission if the facsimile is received prior to
5:00 p.m. or (iii) seventy-two (72) hours after the date of mailing. Despite
what is stated above, the Tenant acknowledges that if its head office address is
stipulated as a post office box or rural route number, then notice will be
considered to have been sufficiently given to the Tenant if delivered in person
or sent by registered mail to the Premises or, where notice cannot be given in
person upon the Premises, by posting the notice upon the Premises. Either party
may notify the other in writing of a change of address and the address specified
in the notice will be considered the address of the party for the giving of
notices under this Lease. If the postal service is interrupted or substantially
delayed, any notice, demand, request or other instrument will only be delivered
in person. A notice given by or to one Tenant is a notice by or to all of the
Persons who are the Tenant under this Lease.
16.10 MANAGEMENT OF THE COMPLEX
The Tenant hereby acknowledges to the Landlord that the Complex or portions
thereof may be managed by a Property Manager which shall, for all intents and
purposes, be the party authorized to deal with the Tenant except that the
Property Manager may not, in any event, vary or amend any of the terms of this
Lease. Unless the Landlord directs the Tenant otherwise in writing, all
payments to the Landlord in respect of this Lease shall be made by cheque
payable to the Landlord in full.
16.11 REGISTRATION
The Tenant will not register or permit the registration of this Lease or any
assignment or sublease or other document evidencing an interest of the Tenant or
anyone claiming through or under the Tenant in this Lease or the Premises.
However, at the Tenant's request and subject to the Tenant paying the Landlord's
costs and expenses, the Tenant may register a notice of lease or caveat which
describes the parties, the Term, rights of renewal and first refusal and
contains the other minimum information required under the applicable
legislation, but the notice of lease or caveat must be in a form satisfactory to
the Landlord, acting reasonably.
- 38 -
<PAGE>
Upon the expiry or earlier termination of this Lease the Tenant shall, at its
sole expense, remove the notice of lease or caveat from title to the Complex
or any part of it failing which the Landlord shall have the right to do so at
the Tenant's sole expense. The Landlord may, at its expense, require the
Tenant to execute promptly whatever document the Landlord requires for
registration on title to the Complex or any part of it in connection with
this Lease.
16.12 SURVIVAL OF OBLIGATIONS
The indemnity provisions of this Lease and the Landlord's rights in respect of
any failure by the Tenant to perform any of its obligations under this Lease
shall remain in full force and effect notwithstanding the expiration or earlier
termination of the Term.
16.13 FIRST RIGHT OF REFUSAL
Provided:
The Tenant is 724 Solutions Inc. or a Permitted Transferee (as defined in
Section 12.01A) and is in occupation of the whole of the Premises, and the
Tenant is not then in default under the terms of this Lease, then the Tenant
will have, during the Term of the Lease including any extensions or renewals
thereof a right of first refusal (the "Right") to lease the area outlined in
green on the attached Schedule "B" which becomes available for lease by the
Landlord (the "Space") on the terms set out below.
If at any time during the Term of the Lease including any extensions or renewals
thereof, the Landlord receives an acceptable offer to lease the Space (the
"Offer") from a bona fide third party, the Landlord will give written notice to
the Tenant of the terms of the Offer and the Tenant will have five (5) days
after receipt thereof in which to notify the Landlord in writing that it elects
to lease the Space on the same terms and conditions as contained in the Offer.
If the Tenant declines the Offer as presented to it or fails to respond within
the five (5) day period, then the Tenant's Right shall thereafter be null and
void an of no further force or effect and the Landlord shall have the right to
lease the Space to a third party on the terms and conditions set out in the
Offer, (provided however if the Landlord does not successfully enter into a
lease with such third party on the terms of such Offer, then the Tenant shall
have the right to lease the Space again).
If within the five (5) day period referred to above the Tenant agrees to lease
the Space on the same terms and conditions set out in the Offer, then there will
be a binding agreement to lease the Space for the balance of the Term or
extended term, as the case may be, on those same terms and conditions and the
Tenant will execute an amending agreement to the Lease as prepared by the
Landlord forthwith upon request. All of the terms and conditions set out in the
Lease will apply except as set out in the Offer.
The forgoing Right is subject to all rights which exist as at March 27, 1998 in
favour of all tenants or other occupants in the Building, including, without
limitation, extension or renewal rights and prior rights of first refusal.
16.14 PARKING
The Landlord shall make available, eight (8) parking spaces in the underground
parking garage of the Building. Three (3) of such parking stalls shall be
reserved and at a cost of $165.00 per month, subject to change from time to time
during the duration of the Term of the Lease, including any extensions. The
remaining five (5) parking stalls shall be unreserved at a charge of $100.00 per
month subject to change from time to time during the duration of the Term of
this Lease, including any extensions. These parking stalls shall be used by the
Tenant for the Lease Term at their option, and the Tenant shall have the right
to surrender or take back (subject to availability) any such spaces from time to
time.
16.15 ACCEPTANCE OF LEASE
The Tenant hereby accepts this Lease of the Premises to be held by it as Tenant,
subject to the conditions, restrictions and covenants herein set forth.
IN WITNESS WHEREOF the Landlord and the Tenant have signed and sealed this
Lease.
SIGNED, SEALED AND DELIVERED ) TRUSCAN PROPERTY CORPORATION
in the presence of ) (Landlord)
- 39 -
<PAGE>
)
)
) Per: /s/ Mark Klym
___________________________________________________________________
) Authorized Signature
)
)
)
) Per: /s/ Dawn Michaeloff
___________________________________________________________________
) Authorized Signature
)
)
)
)
) 724 SOLUTIONS INC.) (Tenant)
)
)
) Per: /s/ Chris Erickson
___________________________________________________________________
) Authorized Signature
)
)
) Per:
___________________________________
) Authorized Signature
)
)
) I/We have authority to bind the corporation.
- 40 -
<PAGE>
SCHEDULE "A" - LEGAL DESCRIPTION OF THE COMPLEX
TENANT: 724 SOLUTIONS INC.
--------------------------------------------
DATE: APRIL 23, 1998
-----------------------------------------------------------
FIRSTLY:
Property Identifier: Part of 10103-0105(R)
In the City of North York, in the Municipality of Metropolitan Toronto, being
composed of Part of Lot 11, Concession 1, E.Y.S. and Part of Lot 92,
Registered Plan 204, registered in the Land Registry Office for the
Metropolitan Toronto Registry Division (No. 64) and designated as Parts 3, 4
and 5 on Reference Plan 64R-13846 (YMC-1).
SECONDLY:
Property Identifier 10103-0116 (LT)
In the City of North York, in the Municipality of Metropolitan Toronto, being
composed of part of Lot 11, Concession 1, E.Y.S. and part of Lot 92
Registered Plan 204 and part of Units 1 and 2, Registered Plan D-48 and part
of Lot 16, and Block A, Registered Plan M-537, registered in the Land
Registry Office for the Land Titles Division of Metropolitan Toronto (No. 66)
and designated as Part 1 on Reference Plan 66R-16692 (YMC-2), Parts 3, 37,
38, 39 and 40 on Reference Plan 66R-16692 (YMC-3), Parts 7, 8, 9, 41 and 42
on Reference Plan 66R-16692 (YMC-4) and Parts 15, 22, 24, 25, 26, 27, 28, 29,
30, 31, 32, 33, 34 and 35 on Reference Plan 66R-16692 (YMC-5).
The foregoing lands, Firstly and Secondly described (the "Owners' Lands")
include:
(a) all concrete walls, concrete block walls or masonry walls, load
bearing walls, columns and concrete columns, transfer girders,
caissons, concrete bases, concrete slabs, tile floors and concrete
sidewalks, located within the Metro Lands necessary for the support of
the Owner's Lands including all buildings, structures, fixtures and
improvements thereon, save and except any of same located within Parts
10, 23 and 36 on Reference Plan 66R-16692 (YMC-5) and Parts 1 and 2 on
Reference Plan 64R-13846 and Part 7 on Reference Plan 66R-16609
(YMC-1A);
(b) faces of staircases, faces of doors, faces of elevator cars, faces of
finished walls, faces of door frames, faces of retail stores and edges
of escalators;
(c) the Owner's Facilities and, to the extent, if any, of the Owner's
ownership interest therein, the Shared Facilities, all as defined and
set out in an Agreement made the 14th day of August, 1993 between The
Municipality of Metropolitan Toronto, The York-Trillium Development
Group Ltd. and Double Y Holdings Inc. represented by Deloitte and
Touche Inc. in its capacity as Receiver, and TTC, titled "Mutual
Easement and Shared Facilities Agreement"; and
(d) enclosures for such facilities referred to in item (c).
Notwithstanding the foregoing, the Owner's Lands do not include:
(e) all partition walls, acoustic concrete block walls, aluminum frame
partitions, steel sheet metal partitions, the faces of tiled walls and
the faces of glass partitions located on the Metro Lands' side of the
boundary as outlined and described in Reference Plan 66R-16692 (YMC-2,
YMC-3, YMC-4 and YMC-5);
(f) the Metro/TTC Facilities and, to the extent, if any, of The Municipality
of Metropolitan Toronto's ownership interest therein, the Shared
Facilities, all as defined and set out in an Agreement made the 14th day
of August, 1993 between The Municipality of Metropolitan Toronto, The
York-Trillium Development Group Ltd. and Double Y Holdings Inc.
represented by Deloitte and Touche Inc. in its capacity as Receiver, and
TTC, titled "Mutual Easement and Shared Facilities Agreement";
and the Owner's Lands are subject to the right of support appurtenant to the
Metro Lands for the said Facilities as now provided by load bearing walls and
columns, transfer girders, caissons, concrete bases and concrete slabs located
within the Owners' Lands.
SUBJECT TO AN EASEMENT to the Hydro-Electric Commission of the City of North
York designate as Parts 1, 2, 3, 4 and 5 on Reference Plan 66R-14852 as more
particularly set out in C-361347.
-41-
<PAGE>
SUBJECT TO EASEMENTS vested in The Municipality of Metropolitan Toronto, all
as set out in Schedules 2A, 2B, 2C, 2D, 2E and 2F of an Order of Mr. Justice
Farley of the Ontario Court of Justice (General Division) made the 14th day
of August, 1993 titled "Vesting Order (Metro Lands)" and registered in the
Land Registry Office for the Registry Division of Metropolitan Toronto (No.
64) as Instrument No. TB935238 and in the Land Registry Office for the Land
Titles Division of Metropolitan Toronto (No. 66) as Instrument No. C870999.
TOGETHER WITH EASEMENTS vested in The York-Trillium Development Group Ltd.
and Double Y Holdings Inc. represented by Deloitte and Touche Inc. in its
capacity of Receiver and Manager, all as set out in Schedules 2A, 2B and 2C
to an Order of Mr. Justice Farley of the Ontario Court of Justice (General
Division) made the 14th day of August, 1993, titled "Vesting Order (York
Mills Centre Lands)" and registered in the Land Registry Office for the
Registry Division of Metropolitan Toronto (No. 64) as Instrument No. TB935239
and in the Land Registry Office for the Land Titles Division of Metropolitan
Toronto (No. 66) as Instrument No. C871000.
-42-
<PAGE>
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES
TENANT: 724 SOLUTIONS INC.
--------------------------------------------
DATE: APRIL 23, 1998
-----------------------------------------------------------
The sole purpose of this plan is to identify the approximate location
of the Premises in the Building.
-43-
<PAGE>
SCHEDULE "C" - LANDLORD'S AND TENANT'S WORK
TENANT: 724 SOLUTIONS INC.
--------------------------------------------
DATE: APRIL 23, 1998
-----------------------------------------------------------
I. ACKNOWLEDGMENTS
------------------
1.01 ACCEPTANCE OF PREMISES
The Tenant acknowledges that it has carefully examined the Premises and that
it will accept the Premises in whatever condition they may be when the
Landlord gives the Tenant access to or possession of them, subject to latent
structural defects and completion of Landlord's Initial Work as set out in
Section 2.02 hereof.
1.02 ARCHITECT'S OPINION
The Architect's opinion is binding on the Landlord and the Tenant respecting
all matters regarding the Landlord's Work and the Tenant's Work.
1.03 ACCESS TO PREMISES
(a) The Landlord may, upon reasonable notice to the Tenant, require the
Tenant to perform parts of the Tenant's Work prior to Substantial Completion
of the Landlord's Work in any case where the nature or state of the
Landlord's Work is such that it is necessary, reasonable or economical to do
so. "Substantial Completion" means, with respect to the Landlord's Work,
completion of the Landlord's Work to the extent that the Tenant's Work can be
performed in conjunction with the Landlord's Work. In the event of a dispute
as to (i) Substantial Completion of the Landlord's Work or (ii) the
availability of the Premises for possession by the Tenant, a certificate of
the Architect will be conclusive and binding upon the parties hereto.
Further, the Tenant acknowledges and agrees that there may be aspects of the
Landlord's Work which is to be completed in conjunction with the Tenant's
Work and in such event the Tenant agrees that the Landlord will be entitled
to continue with its construction of the Landlord's Work during the Fixturing
Period.
(b) The Landlord may enter the Premises to maintain, install, alter or
relocate utilities, pipes, conduits and ducts, to install or reinforce
columns, or to do other work that benefits the Premises, or that is required
in connection with other parts of the Building or the Complex, including an
expansion, and the Tenant shall throughout the Term provide the Landlord or
utility companies with free and uninterrupted access for those purposes.
1.04 DELAY IN POSSESSION
If the Landlord is delayed in delivering possession of all or any portion of
the Premises to the Tenant on or before the Commencement Date due to a
circumstance to which Section 16.08 of the Lease applies, the Tenant shall
take possession of the Premises on the date when the Landlord delivers
possession of all of the Premises. Unless such delay is principally caused
by or attributable to the Tenant, or its employees, contractors or those for
whom the Tenant is in law responsible, no Rent shall be payable by the Tenant
for the period prior to the date on which the Landlord can so deliver
possession of all of the Premises, unless the Tenant elects to take
possession of a portion of the Premises whereupon Rent shall be payable in
respect thereof from the date such possession is so taken. The Landlord
shall not be liable for any loss, injury, damage or inconvenience which the
Tenant may sustain by reason of any delay in delivering possession.
1.05 REMOVAL OF LIENS
If liens are claimed, filed or registered against the Premises or other parts
of the Complex in connection with the Tenant's Work, then the Landlord may
avail itself of all rights and remedies contained in Section 10.06 of this
Lease.
1.06 OCCUPATIONAL HEALTH AND SAFETY - The Tenant will ensure that a
comprehensive and rigorous health and safety program to protect workers is
implemented for the performance of the Tenant's Work. The Tenant will
indemnify each of the Released Persons in respect of all claims, infractions,
prosecutions, alleged infractions, losses, costs and expenses and any fines
or proceedings relating to fines or other offenses under all occupational
health and safety and similar legislation that might be brought, imposed
against, or suffered by Released Persons or any of them in connection with
the performance of the Tenant's Work. In addition, the Tenant will do, at
least the following:
-44-
<PAGE>
(a) ensure that all obligations imposed by statute, law or regulation on
"constructors" or on other persons supervising, completing or co-ordinating
the Tenant's Work are properly performed, that all directions given by any
governmental or other regulatory inspector are properly performed and that
necessary access is provided to those inspectors;
(b) where statute, law or regulation provides for designations of separate
projects, co-operate with the Landlord in having the Tenant's Work designated
as a separate project so that the Landlord does not incur obligations as a
constructor or similar obligations in connection with the performance of the
Tenant's Work;
(c) comply with any recommendations that the Landlord gives to the Tenant
in connection with the performance of the Tenant's Work having regard to
health and safety requirements;
(d) employ only contractors and require contractors to employ only
sub-contractors that have good health and safety records, and provide
evidence satisfactory to the Landlord concerning their health and safety
records; and
(e) provide to the Landlord whatever rights of access, inspection, and
whatever information, and documents the Landlord requires in order to ensure
that the Tenant's obligations under this Section are complied with.
II. LANDLORD'S WORK
--------------------
2.01 PURPOSE OF DESCRIPTION
The Landlord's Work set out below is described solely to indicate, in
accordance with Section 11.02 of the Lease, the extent of the Landlord's
obligations to rebuild or repair the Premises. The Landlord is not required
to do any work or provide any materials to or in respect of the Premises
except as expressly provided in the Lease. The Landlord's Work consists only
of those items listed below:
(a) WITH RESPECT TO THE BUILDING
To complete the shell of the Building; provide elevators within the Building;
complete the HVAC System; complete systems for the distribution of
electricity for the Building (but not within individual Leasable Premises);
complete systems for water, telephone and other utility services; construct
service areas necessary to the Building; and construct entrances and lobbies
and other facilities for use in common by the Tenant and other tenants of the
Building (but exclusive of the interior of the Premises and other Leasable
Premises within the Building).
(b) WITH RESPECT TO THE PREMISES
(i) FLOORS: poured concrete subfloor.
(ii) CEILING: a suspended T-Bar ceiling grid system complete with air
supply and return diffusers and sprinklers in accordance
with applicable building code based on an open floor
concept. Ceiling tiles in keeping with the Landlord's
designated Building standard will be provided by the
Landlord but installed by the Tenant's contractor at the
Tenant's expense.
(iii) DOORS: if the Premises are not comprised of a full floor,
entrance doors into the Premises in accordance with the
Landlord's designated standard Building materials and
finishes. If required by applicable building code, the
Landlord will provide a second exit.
(iv) DEMISING
WALLS: if the Premises are not comprised of a
full floor, demising and corridor walls, where
applicable, from the floor slab to the underside of the
ceiling, materials to be chosen by the Landlord, and one
(1) layer of drywall from the ceiling to the underside
of the slab, taped and sanded and primed for paint.
(v) ELEVATOR
LOBBY: if the Premises are not comprised of a full floor, a
finished elevator lobby complete with floor, wall and
ceiling finishes in keeping with the Landlord's designated
Building standard and also a drywall corridor wall taped,
sanded and prime painted on the Tenant's side and complete
with wall finish on the corridor side to the Landlord's
designated Building standard.
-45-
<PAGE>
(vi) WASHROOMS: washrooms for the floor on which the Premises are located
complete with wall, floor and ceiling finishes, all in
accordance with Landlord's designated standard Building
materials and finishes.
(vii) CORE WALLS: if the Premises are not comprised of a full floor, finish
on core walls on the floor (except within the Premises)
and columns drywall primed and painted (except where
located within the Premises).
(viii) WINDOW
COVERINGS: Building standard window coverings as designated by the
Landlord.
(ix) SIGNAGE: If the Premises are not comprised of a full floor, a
corridor entrance sign for the Tenant on the floor on
which the Premises are located in accordance with the
Landlord's designated materials and design for use in
Building standard.
(x) ELECTRICAL: one main electrical service for the Building to circuit
breaker panels located on the floor on which the Premises
are located. Distribution of electrical within the
Premises shall be provided by the Tenant.
(xi) LIGHT
FIXTURES: light fixtures in accordance with Building standard as
designated by the Landlord, installed in a uniform pattern
and provided on the basis of on an open floor concept.
(xii) HVAC: distribution of HVAC within the Premises provided on the
basis of an open floor concept.
2.02 LANDLORD'S INITIAL WORK
The Landlord's Initial Work set out below is described only to indicate the
extent of the Landlord's obligations with respect to the Tenant's initial
occupation of the Premises under this Lease only (but shall not apply in
connection with Article 11 for which the parties agree that Section 2.01 of
this Schedule "C" shall apply):
(1) the Landlord shall demise the Premises in accordance with the Building
standard using Building standard painted floor to underside of slab
insulated drywall; and
(2) the building of standard entry doors.
The Landlord's Initial Work shall be completed within two (2) weeks of the date
upon which possession of the Premises is delivered to the Tenant.
All space planning for the Premises shall be at the Landlord's sole expense
using the Architect.
The Landlord will not disassemble, demolish or damage any of the Premises
without the express consent of the Tenant.
III. TENANT'S WORK
-------------------
3.01 WORK MAY BE PERFORMED BY LANDLORD
The Landlord may, at its option and in accordance with Section 10.02(d)(ii) of
the Lease, perform any work forming part of the Tenant's Work at the expense of
the Tenant and payments shall be made in accordance with the Payment Schedule
referred to in Article VI of this Schedule.
3.02 TENANT'S WORK
The Tenant will provide and carry out, in accordance with this Schedule, at its
expense, all equipment and work required to be provided and performed in order
to make the Premises complete and suitable to open for business including, but
not limited to, the following:
(a) INTERIOR FINISHES - All interior finishes and installations as may be
required, including, but not limited to, painting and decorating, partitions,
floor coverings, fixtures and furnishings, special wall or ceiling finishes,
security vaults, sound insulation and smoke baffle equipment.
-46-
<PAGE>
(b) ELECTRICAL - The Tenant will modify the existing electrical layout
provided by the Landlord as required to suit the layout of its Premises, and
will provide branch wiring, lighting outlets and receptacles, all lighting
and electrical fixtures including lamps, clocks, exit signs, emergency
lighting, night lights and any required smoke detectors completely wired to
the alarm system of the Building, bell system and other equipment as
required. All electrical work shall conform to the Building Code, the
Canadian Electrical Code, and the requirement of all governmental and
regulatory authorities having jurisdiction.
(c) SPRINKLER DISTRIBUTION - The Tenant will modify the existing sprinkler
system as required to suit the layout of its Premises and the Tenant will
also install any other firefighting and emergency equipment that is required
by the Tenant, the Landlord, any insurer of the Premises or of the Building,
or by any governmental or regulatory authority having jurisdiction.
(d) HEATING, VENTILATING AND AIR-CONDITIONING (HVAC) - As required by the
Tenant, the Tenant will modify the existing HVAC distribution and diffuser
layout as required to suit the layout of its Premises.
(e) RENOVATIONS - The Tenant acknowledges and agrees that (i) it is
accepting possession of the Premises in an "as is" condition as of the
commencement of the Fixturing Period subject to latent defects and the
Landlord's Initial Work (ii) no changes are to be made to the fixturing,
lay-out, utilities and services without obtaining the prior written approval
of the Landlord and all governmental authorities having jurisdiction
thereover, thereto (iii) the Landlord has no responsibility or liability for
making any renovation, alterations or improvements in or to the Premises, and
(iv) all renovations, alterations or improvements in or to the Premises are
the sole responsibility of the Tenant and shall conform to the Landlord's
standard design and construction criteria in effect for the Building and be
undertaken and completed at the Tenant's expense and strictly in accordance
with the provisions of this Schedule "C" and the Lease. The Tenant agrees to
complete all required work prior to July 15, 1998, subject to Section 16.08
of the Lease.
Notwithstanding anything herein to the contrary, the Tenant shall not be
responsible for any charges associated with supervision fees that the
Landlord may require while the Tenant undertakes the renovations to the
Premises prior to the Commencement Date or as a result of reviewing the
Tenant's plans and specifications.
3.03 RESTRICTIONS AND REQUIREMENTS
Despite anything to the contrary contained in this Schedule, the following
restrictions and requirements apply:
(a) FLOOR LOADS - The Tenant will not, without the prior written consent
of the Landlord, impose upon any floor area a greater load than the designed
live load capacity for the Building.
(b) SUSPENDED LOADS - No suspended loads are permitted other than the
normal ceiling and lighting loads from the underside of any floor, roof or
ceiling structures or assemblies of the Building without the prior written
approval of the Landlord. No suspended loads will be permitted from roofs,
steel deck, ducts, pipes or conduits.
(c) BUILDING ROOF - The Tenant will not enter, nor will it permit those
for whom it is in law responsible, or its contractors, or their employees or
agents, to enter onto the roof of the Building or the Complex or make any
opening in the roof. Neither the Tenant nor its workmen will drill or cut
openings in the floors, columns, walls, ceilings, roofs or structure of the
Building or the Complex; nor will they vary or alter in any manner whatsoever
any plumbing, electrical, mechanical systems or HVAC System of the Complex or
any of their components whether or not located within the Premises. Any such
work required by the Tenant, if approved by the Landlord, will be performed
by the Landlord at the Tenant's expense.
3.04 REMOVAL OF EQUIPMENT AND IMPROVEMENTS
Any requirement under this Article III for the Tenant to provide equipment,
carry out work or complete improvements also requires the Tenant to remove
any existing corresponding equipment and improvements, unless the Lease or
the Landlord directs otherwise.
IV. LANDLORD'S REQUIREMENTS FOR TENANT'S WORK
----------------------------------------------
4.01 REQUIREMENTS PRIOR TO THE COMMENCEMENT OF THE TENANT'S WORK
(a) SUBMISSION AND APPROVAL OF PLANS, DRAWINGS AND SPECIFICATIONS AND
REQUIREMENTS WITH RESPECT TO PERFORMANCE OF THE TENANT'S WORK - The Tenant
shall comply with all of the provisions of Section 10.02 of the Lease;
-47-
<PAGE>
(b) TENANT'S INSURANCE - Before entering on the Premises for any purpose,
the Tenant will provide the Landlord with a certificate of insurance on the
Landlord's standard form, duly executed by the Tenant's insurers, evidencing
that the insurance required to be placed by the Tenant pursuant to the Lease
is in force.
(c) TENANT'S PERMITS - The Tenant will provide evidence satisfactory to
the Landlord prior to commencing any work in respect of the Premises that the
Tenant has obtained at its expense, all necessary consents, permits, licenses
and inspections from all governmental and regulatory authorities having
jurisdiction and will post permits when required by law. Should the Tenant
fail to obtain any required consent, permit, license, inspection or
certificate, the Landlord may, but will not be obligated to, obtain it on
behalf of the Tenant at the Tenant's expense.
(d) COMPLIANCE WITH THE LANDLORD'S REQUIREMENTS - The Tenant will itself
and will also cause its contractors to: (i) abide by all safety regulations,
(ii) provide adequate fire protection including, without limitation, fire
extinguishers, (iii) deliver and store materials and tools as may be directed
by the Landlord, (iv) stop immediately, if requested by the Landlord, any
work which, in the opinion of the Landlord, by reason of public hazard, noise
or otherwise, is likely to affect the normal operation of the Building, the
Complex or any part thereof, and (v) abide by all the rules and regulations
and requirements established by the Landlord from time to time relative to
the construction of the Premises.
4.02 FIXTURING PERIOD
The Fixturing Period shall be a maximum period of ninety (90) days and shall
commence on the date the Landlord has delivered possession of the Premises to
the Tenant and shall expire on July 31, 1998. The Tenant shall be permitted
to open for business at any time during the Fixturing Period without any
obligation for the payment of Rent until the Commencement Date, except for
charges described in Section 5.01 hereof.
4.03 REQUIREMENTS AFTER THE PERFORMANCE OF THE TENANT'S WORK
(a) TENANT'S DECLARATION - The Tenant will provide to the Landlord, upon
request, a statutory declaration (the "Declaration"): (i) stating that the
Tenant's Work has been performed in accordance with all of the provisions of
this Schedule and that all deficiencies (if any) which the Landlord has
brought to the Tenant's attention have been corrected; (ii) stating that
there are no construction, builders', mechanic's, workers', workers'
compensation or other liens and encumbrances affecting the Premises or the
Complex or any part of it with respect to work, services or materials
relating to the Tenant's Work and that all accounts for work, services and
materials have been paid in full with respect to all of the Tenant's Work;
(iii) listing the general contractor who did work or provided materials in
connection with the Tenant's Work; and (iv) confirming the date upon which
the last such work was performed and materials were supplied.
(b) FINAL WORKERS' COMPENSATION CLEARANCES - The Tenant will also furnish
to the Landlord, within sixty (60) days after the opening of the Premises for
business, a clearance certificate issued under the workers' compensation act
of the Province in respect of each contractor and sub-contractor.
V. INTERIM DISPOSITIONS
-----------------------
5.01 During the Fixturing Period the Tenant shall not be obligated to pay
Minimum Rent or Additional Rent (except for charges for Utilities under
Section 7.02 and the costs of any additional services in accordance with
Section 7.03 for which the Tenant will continue to be obligated to pay), but
the Tenant shall be subject to all the other terms and conditions of this
Lease insofar as they are applicable including, without limitation, the
obligations to pay Business Taxes pursuant to Section 5.04 of the Lease to
the Landlord at the times and in the manner directed by the Landlord, the
obligation to maintain insurance pursuant to Section 9.02(a) of the Lease,
and the provisions relating to the liability of the Tenant for its acts and
omissions, and the acts and omissions of its servants, employees, agents,
contractors, invitees, concessionaires and licensees and the indemnification
of the Landlord and others under the Lease.
VI. PAYMENT SCHEDULE
---------------------
6.01 EQUIPMENT OR WORK SUPPLIED BY LANDLORD
Any equipment or work other than that stipulated as the Landlord's Work which
is supplied or performed by the Landlord for or at the request of the Tenant,
or any excess or additional cost in the Landlord's Work occasioned by the
Tenant's requirements or revisions to such requirements, will be paid for by
the Tenant as Additional Rent within fifteen (15) days after the receipt of a
request for it. The cost of the equipment or work will include (in addition
to direct labour, material and applicable taxes) architectural, engineering
and contractor's fees, any costs to the Landlord which are attributable to
changes requested by the Tenant, and
-48-
<PAGE>
any additional overhead charge for the Landlord's supervision equal to
fifteen percent (15%) of the aggregate cost of the equipment and work.
Notwithstanding anything contained in this Schedule "C" to the contrary, the
Tenant shall not be responsible for any charges associated with supervision
fees that the Landlord may require while the Tenant undertakes the
renovations and alterations to the Premises as set out in Section 3.02 of
this Schedule "C" or incurred as a result of the Landlord's review of the
construction plans.
-49-
<PAGE>
SCHEDULE "D" - RULES AND REGULATIONS
TENANT: 724 SOLUTIONS INC.
----------------------------------------
DATE: APRIL 23, 1998
----------------------------------------
1. LIFE SAFETY
(a) The Tenant shall not do or permit anything to be done in the
Premises, or bring or keep anything therein which will in any way
increase the risk of fire or the rate of fire insurance on the
Complex, the Building or on property kept therein, or obstruct or
interfere with the rights of other tenants or in any way injure or
annoy them or the Landlord, or violate or act at variance with the
laws relating to fires or with the regulations of the Fire
Department, or with any insurance upon the Complex, the Building
or in any part thereof, or violate or act in conflict with any
statutes, rules and ordinances governing health standards or with
any other statute or municipal by-law. (b) No inflammable oils or
other inflammable, dangerous, corrosive or explosive materials
save those approved in writing by the Landlord's insurers shall be
kept or permitted to be kept in the Premises.
2. SECURITY
(a) The Landlord shall permit the Tenant and the Tenant's employees
and all Persons lawfully requiring communication with them to have
the use, during Business Hours in common with others entitled
thereto, of the main entrance and the stairways, corridors,
elevators, escalators, or other mechanical means of access leading
to the Complex, the Building and the Premises. At times other
than during Business Hours the Tenant and the employees of the
Tenant shall have access to the Building and to the Premises only
in accordance with the systems and procedures adopted by the
Landlord from time to time for the security or safety of the
Building or the Complex and any persons occupying, using or
entering the Building or the Complex and shall be required to
satisfactorily identify themselves and to register in any book
which may at the Landlord's option be kept by the Landlord for
such purpose. If identification is not satisfactory, the Landlord
is entitled to prevent the Tenant or the Tenant's employees or
other Persons lawfully requiring communication with the Tenant
from having access to the Building and to the Premises. In
addition, the Landlord is not required to open the door to the
Premises for the purpose of permitting entry therein to any Person
not having a key to the Premises.
(b) The Tenant shall not place or cause to be placed any additional
locks, bolts or other security devices upon any doors or windows
of the Premises without the prior written approval of the Landlord
(which may be arbitrarily withheld if they are not in conformity
with the Building master access system) and except in accordance
with such conditions as are imposed by the Landlord. Two keys
shall be supplied to the Tenant for each entrance door to the
Premises and all locks (both within the Premises and on the access
doors to the Premises) shall be Building standard to permit access
by the Landlord's master key. If additional keys are required,
they must be obtained from the Landlord at the cost of the Tenant.
Keys or other means of access for entrance doors to the Building
will not be issued without the written authority of the Landlord.
No changes to existing locks in the Premises and to the access
doors to the Premises may be made without the Landlord's prior
written approval and co-ordination. The access doors to the
Premises must be left locked when the Premises are not in use.
3. HOUSEKEEPING
(a) The Tenant shall permit window cleaners to clean the windows of
the Premises during Business Hours.
(b) The Tenant shall not place any debris, garbage, trash or refuse or
permit same to be placed or left in or upon any part of the
Building or the Complex outside of the Premises, other than in a
location provided by the Landlord specifically for such purposes,
and the Tenant shall not allow any undue accumulation of any
debris, garbage, trash or refuse in or outside of the Premises.
If the Tenant uses perishable articles or generates wet garbage,
the Tenant shall provide refrigerated storage facilities suitable
to the Landlord.
(c) The Tenant shall not place or maintain any supplies, or other
articles in any vestibule or entry of the Premises, on the
adjacent footwalks or elsewhere on the exterior of the Premises or
elsewhere on or in the Building or the Complex.
(d) The sidewalks, entrances, passages, escalators, elevators and
staircases shall not be obstructed or used by the Tenant, its
agents, servants, contractors, invitees or employees for any
purpose other than ingress to and egress from the Premises, the
Building and the Complex. The Landlord reserves
- 50 -
<PAGE>
entire control of all parts of the Complex employed for the
common benefit of the tenants and without restricting the
generality of the foregoing, the sidewalks, entrances,
corridors and passages not within the Premises, washrooms,
lavatories, air conditioning closets, fan rooms, janitor's
closets, electrical closets and other closets, stairs,
escalators, elevator shafts, flues, stacks, pipe shafts and
ducts and shall have the right to place such signs and
appliances therein, as it deems advisable, provided that
ingress to and egress from the Premises is not unduly impaired
thereby.
(e) The Tenant shall not cause or permit: any waste or damage to the
Premises; any overloading of the floors or the utility, electrical
or mechanical facilities of the Premises; any nuisance in the
Premises; or any use or manner of use causing a hazard or
annoyance to other occupants of the Complex or to the Landlord.
4. RECEIVING, SHIPPING, MOVEMENT OF ARTICLES
(a) The Tenant shall not receive or ship articles of any kind except
through facilities and designated doors and at hours designated by
the Landlord and under the supervision of the Landlord. The
Landlord may restrict and regulate the use of public areas of the
Complex for deliveries (including, but not limited to, allocating
the freight or other elevators to be used in connection with, and
the reasonable hours of use of the elevator or elevators for,
delivery service and "moving out" purposes).
(b) Hand trucks, carryalls or similar appliances shall only be used in
the Complex with the consent of the Landlord and shall be equipped
with rubber tires, slide guards and such other safeguards as the
Landlord requires.
(c) The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Complex, including the Premises, without first
obtaining the consent in writing of the Landlord. In giving such
consent, the Landlord shall have the right in its sole discretion,
to prescribe the weight permitted and the position thereof, the
use and design of planks, skids or platforms, and to distribute
the weight thereof. All damage done to the Complex, including the
Premises, by moving or using any such heavy equipment or other
office equipment or furniture shall be repaired at the expense of
the Tenant. The moving of all heavy equipment or other office
equipment or furniture shall occur only by prior arrangement with
the Landlord. The cost of such moving shall be paid by the
Tenant. Safes and other heavy office equipment and machinery
shall be moved through the halls and corridors only in a manner
expressly approved by the Landlord. No freight or bulky matter of
any description will be received into any part of the Complex,
including the Premises, or carried in the elevators except in
accordance with the Landlord's requirements and during hours
approved by the Landlord.
5. PREVENTION OF INJURY TO PREMISES
(a) It shall be the duty of the Tenant to assist and co-operate with
the Landlord in preventing injury to the Premises.
(b) The Tenant shall not deface or mark any part of the Complex,
including the Premises, and shall not drive nails, spikes, hooks
or screws into the walls, floors, ceilings or woodwork of any part
of the Complex, including the Premises, or bore, drill or cut into
the walls, floors, ceilings or woodwork of any part of the Complex
including the Premises, in any manner or for any reason.
(c) If the Tenant desires telegraphic or telephonic connections, the
Landlord, in its sole discretion, may direct the electricians as
to where and how the wires are to be introduced. No gas pipe or
electric wire will be permitted which has not been ordered or
authorized by the Landlord. No outside radio or television
antenna shall be allowed on any part of the Premises without
authorization in writing by the Landlord.
6. WINDOWS
The Tenant shall observe the Landlord's rules with respect to
maintaining uniform window coverings on all windows in Leasable
Premises and will not install any window shades, screens, drapes,
blinds, covers or other covering on or at any window in the Premises
without the Landlord's prior written consent. Except for the proper
use of Landlord approved window coverings, the Tenant shall not cover,
obstruct or affix any object or material to any of the skylights and
windows that reflect or admit light into any part of the Complex,
including, without limiting the generality of the foregoing, the
application of solar films.
7. WASHROOMS
- 51 -
<PAGE>
(a) The Landlord shall permit the Tenant and the employees of the
Tenant in common with others entitled thereto, to use the
washrooms on the floor of the Building on which the Premises
are situated or, in lieu thereof, those washrooms designated by
the Landlord, save and except when the general water supply may
be turned off from the public main or at such other times when
repairs and maintenance undertaken by the Landlord shall
necessitate the non-use of the facilities.
(b) The water closets and other apparatus shall not be used for any
purpose other than those for which they were intended, and no
sweepings, rubbish, rags, ashes or other substances shall be
thrown into them. Any damage resulting from misuse shall be
borne by the Tenant by whom or by whose agents, servants,
invitees or employees such damage is caused.
8. USE OF PREMISES
(a) No one shall use the Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or
articles other than those required for business purposes.
(b) No cooking or heating of any foods or liquids (other than the
heating of water or coffee in coffee makers or kettles or the
use of a microwave oven in the Tenant's lunchroom) shall be
permitted in the Premises without the written consent of the
Landlord. The Tenant will not cause or permit any cooking
odours or other unusual or objectionable odours to emanate from
the Premises.
(c) The Tenant shall not install or permit the installation or use
of any machine dispensing goods for sale in the Premises or the
Complex (except for a soft drinks vending machine in the
Tenant's lunchroom) or permit the delivery of any food or
beverage to the Premises without the written approval of the
Landlord or in contravention of the Rules and Regulations.
(d) The Tenant shall not permit or allow any odours, vapours,
steam, water, vibrations, noises or other undesirable effects
to emanate from the Premises or any equipment or installation
therein which, in the Landlord's opinion, are objectionable or
cause any interference with the safety, comfort or convenience
of the Complex to the Landlord or the occupants and tenants
thereof or their agents, servants, invitees or employees.
9. CANVASSING, SOLICITING, PEDDLING
Canvassing, soliciting and peddling in or about the Complex are
prohibited.
10. BICYCLES
No bicycles or other vehicles shall be brought within any part of the
Complex without the consent of the Landlord.
11. ANIMALS AND BIRDS
No animals or birds shall be brought into any part of the Complex
without the consent of the Landlord.
12. SIGNS AND ADVERTISING
The Tenant shall not paint, affix, display or cause to be painted,
affixed or displayed, any sign, picture, advertisement, notice,
lettering or decoration on the exterior of the Premises, the Building
or the Complex or in the interior of the Premises which is visible
from the exterior of the Building. The Landlord will prescribe a
uniform pattern and location of identification signs for tenants to be
placed on the outside of the Premises.
13. DIRECTORY BOARD
The Tenant shall be entitled at its expense to have its name shown upon
the directory board of the Building and the Landlord shall design the
style of such identification and shall determine the number of spaces
available on the directory board for each tenant. The directory board
shall be located in an area designated by the Landlord in the main lobby
of the Building.
14. USE OF ELEVATORS
The Landlord may require at least twenty-four (24) hours' prior notice to
the Property Manager of the Tenant's desire to use the freight elevator,
which in all cases will be subject to availability.
- 52 -
<PAGE>
SCHEDULE "E" - METHOD OF MEASUREMENT
TENANT: 724 SOLUTIONS INC.
----------------------------------------
DATE: APRIL 23, 1998
----------------------------------------
(a) The Rentable Area of an individual Leasable Premises in the Office
Component will be computed as follows:
(i) If the Leasable Premises consists of a whole floor, the Rentable
Area of such Leasable Premises shall be the aggregate of:
(1) the Usable Area of such Leasable Premises; and
(2) a fraction of the area of the Fan Room Area, which fraction
has as its numerator the Usable Area of such Leasable Premises
and as its denominator the aggregate of the Usable Areas of all
individual Leasable Premises in the Office Component.
(ii) If the Leasable Premises consists of only part of a floor, the
Rentable Area of such Leasable Premises shall be the aggregate of:
(1) the Usable Area of such Leasable Premises;
(2) a fraction of the area of the Fan Room Area, which fraction
has as its numerator the Usable Area of such Leasable Premises and
as its denominator the aggregate of the Usable Areas of all
individual Leasable Premises in the Office Component; and
(3) a fraction of the total area of the Service Areas on the floor
on which such Leasable Premises are located (excluding the Fan
Room Area if the Fan Room Area is located on the same floor as
such Leasable Premises), which fraction has as its numerator the
Usable Area of such Leasable Premises and as its denominator, the
aggregate of the Usable Areas of all individual Leasable Premises
on that floor.
(b) Where used in (a) above, the following terms shall have the following
meanings:
(i) "Usable Area" means:
(1) in the case of Leasable Premises in the Office Component
which consist of a whole floor, all floor areas within the
outside walls, and shall be computed by measuring to the
inside finish of the permanent outer building walls of the
building in which such premises are located, or as the case
may be, to the inside surface of the glass outer building
walls if 50% or more of the outer building walls is glass,
and shall include all areas within the permanent outer
building walls or glass outer building walls of the
building in which such premises are located, without
deduction for columns, projections and perimeter induction
unit risers necessary to such building, but shall not
include stairways and elevator shafts and their enclosing
walls supplied by the Landlord for use in common with other
tenants and flues, stacks, pipe shafts or vertical ducts
and their enclosing walls, but shall include Service Areas
(as that term is defined below in (b)(iii)) within and
exclusively servicing only that particular Leasable
Premises which is being measured; and
(2) in the case of Leasable Premises in the Office Component
which consist of only part of a floor, all of the floor
area leased to the tenant of such premises for its
exclusive possession, which area of exclusive possession
shall be computed by measuring from the inside finish of
the permanent outer walls of the building in which such
premises are located or, as the case may be, from the
inside surface of the glass outer building walls to the
inside finish of partitioning erected by the Landlord to
delineate the access corridor for the floor and other
permanent walls, and to the centre line of partitions which
separate the area leased from adjoining Leasable Premises,
without deduction for columns, projections and perimeter
induction unit risers necessary to such building.
(ii) "Fan Room Area" means the area of the fan room or fan rooms
servicing the Office Component located on one or more floors of
the Complex.
(iii) "Service Areas" means the area of the corridors, elevator lobbies,
service elevator lobbies, washrooms, air-conditioning rooms, fan
rooms, janitor rooms, telephone rooms and electrical rooms
- 53 -
<PAGE>
and other areas or rooms serving the floor on which the Leasable
Premises being measured is located.
(c) The Rentable Area of an individual Leasable Premises in the Retail
Component shall be the aggregate of:
(1) the Usable Area of such Leasable Premises;
(2) a fraction of the area of the Fan Room Area, which fraction has as
its numerator the Usable Area of such Leasable Premises and as its
denominator the aggregate of the Usable Areas of all individual Leasable
Premises in the Retail Component; and
(3) a fraction of the total area of the Service Areas on the floor on
which such Leasable Premises are located (excluding the Fan Room Area if
the Fan Room Area is located on the same floor as such Leasable
Premises), which fraction has as its numerator the Usable Area of such
Leasable Premises and as its denominator, the aggregate of the Usable
Areas of all individual Leasable Premises on that floor.
(d) Where used in (c) above, the following terms shall have the following
meanings:
(i) "Usable Area" means, in the case of all individual Leasable
Premises in the Retail Component, the area measured from the
exterior face of all exterior walls, doors and windows
(including walls, doors and windows separating such Leasable
Premises from any Common Elements) and from the centre line of
all interior walls separating such Leasable Premises from
adjoining Leasable Premises, all without deduction for columns,
projections and perimeter induction unit risers necessary for
the Complex and including all mezzanine areas.
(ii) "Fan Room Area" means the area of the fan room or fan rooms
servicing the Retail Component located on one or more floors of
the Complex.
(iii) "Service Areas" means the area of the corridors, elevator
lobbies, service elevator lobbies, washrooms, air-conditioning
rooms, fan rooms, janitor rooms, telephone rooms and electrical
rooms and other areas or rooms serving the floor on which the
Leasable Premises being measured is located.
- 54 -
<PAGE>
YORK MILLS CENTRE
OFFICE LEASE
TRUSCAN PROPERTY CORPORATION
LANDLORD
724 SOLUTIONS INC.
TENANT
<PAGE>
LEASE AMENDING AGREEMENT
THIS AGREEMENT is dated the 29th day of June, 1998
B E T W E E N :
TRUSCAN PROPERTY CORPORATION
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
724 SOLUTIONS INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 23rd day of April, 1998 (the "Lease"), the Landlord
leased to the Tenant for and during a term, (the "Term"), of Three (3) years
commencing on the 1st day of August, 1998 and ending on the 31st day of July
2001, certain premises, (the "Original Premises"), comprising an area of
approximately Seven Thousand Eight Hundred and Thirty (7,830) square feet
(727.41 square metres) and designated as Suite No. 700 shown outlined in red
on the plan attached to the Lease as Schedule "B", located in the building
municipally located at 4101 Yonge Street in North York, Ontario (the
"Building") in York Mills Centre, (the "Complex"); and
B. The Tenant has exercised its right of first refusal in relation to a
portion of the Leasable Premises shown outlined in green on Schedule "B"
attached to the lease and the parties have agreed to accordingly amend the
Lease in accordance with the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum
of Two Dollars ($2.00) now paid by each of the Parties to the other (the
receipt and sufficiency whereof is hereby acknowledged), and other mutual
covenants and agreements, the Parties do hereby agree as follows:
1. The Parties hereby acknowledge, confirm and agree that the foregoing
recitals are true in substance and in fact.
2. On July 1st, 1998 (the "Turnover Date") the Tenant will be given
possession of approximately 1591 square feet of Rentable Area as more
particularly shown in the approximate location outlined in blue on Schedule
"B" attached to this Agreement (the "Expansion Premises") for the purpose of
commencing the Tenant's fixturing of such premises. During the period
commencing on the Turnover Date and ending on July 31st, 1998, no Minimum
Rent or Additional Rent is payable with respect to such Additional Premises
(except for Utilities under Section 7.02 of the Lease, Additional Rent under
Section 4.03(c)(ii) of the Lease and any Additional Rent which is payable
under the Lease as a result of the Tenant's non-compliance or non-observance
of any provision under the Lease, for which the Tenant will continue to be
obligated to pay) but all other terms and conditions of the Lease shall
apply. The Tenant accepts the Expansion Premises in an "as is" condition and
agrees that all equipment, work, leasehold improvements and fixtures required
to make the Expansion Premises complete and suitable to open for business is
the Tenant's responsibility and is to be undertaken in accordance with plans
and specifications approved by the Landlord in advance in accordance with the
Lease and performed in accordance with the provisions of the Lease. For
greater certainty, the Landlord shall have no obligation to perform any work
in or to the Expansion Premises.
3. The Lease is amended as of the 1st day of July, 1998, (the "Effective
Date"), as follows:
(a) Section 1.01(e) is deleted and replaced with the following:
"(e) Premises: Part of the 7th floor designated as
Suite 700/702 shown in the
approximate location outlined in red
on Schedule "B" and being
collectively comprised of (1) that
portion shown in the approximate
location outlined in yellow on
Schedule "B" (the "First Premises")
and (2) that portion shown in the
approximate location outlined in blue
on Schedule "B" (the "Second
Premises"). Although the First
Premises and the Second Premises are
referred to separately in this Lease
for the purpose of calculating
Minimum Rent payable for each, the
intent is to treat each such premises
collectively
- 1 -
<PAGE>
as one unless a contrary intent is
expressly set out in this Lease."
(b) Section 1.01(f) is deleted and replaced with the following:
"(f) Rentable Area of Premises: comprised of a collective area of
approximately 9,421 square feet,
subject to Section 3.02, more
particularly being (1) the First
Premises comprised of approximately
7,830 square feet and (2) the Second
Premises comprised of approximately
1,591 square feet (as the terms
"First Premises" and "Second
Premises" are defined in Section
1.01(e) above)."
(c) Section 1.01(h) is amended by inserting the words "with respect to that
part of the Premises shown in the approximate location outlined in
yellow on Schedule `B'" to the beginning of the first paragraph and by
inserting the following as the third paragraph:
"with respect to that part of the Premises shown in the approximate
location outlined in blue on Schedule "B", a maximum of 31 days after
the Landlord has delivered possession of the Premises to the Tenant
(subject to Section 16.08) as more particularly set out in Section 4.02
of Schedule "C". The possession date is estimated to be July 1, 1998.";
(d) Section 1.01(i) is deleted and replaced with the following:
"(i) Minimum Rent (subject to Section 4.02):
With respect to the First Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- ---------- ---------
<S> <C> <C> <C>
Aug 1/98
to and including
July 31/99 $12.75 $ 99,832.50 $8,319.38
Aug 1/99
to and including
July 31/2000 $13.25 $103,747.50 $8,645.63
Aug 1/2000
to and including
July 31/2001 $13.75 $107,662.50 $8,971.88
</TABLE>
With respect to the Second Premises (BUT SUBJECT TO SECTION 16.14):
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- ---------- ---------
<S> <C> <C> <C>
Aug 1/98
to and including
July 31/99 $17.01 $27,062.91 $2,255.24
Aug 1/99
to and including
July 31/2000 $17.51 $27,858.41 $2,321.53
Aug 1/2000
to and including
July 31/2001 $18.01 $28,653.91 $2,387.83"
</TABLE>
(e) Section 1.01(k) is amended by deleting the words and figure set out
therein and replacing them with the following: "Twenty-Six Thousand Four
Hundred and Forty Dollars and Nine Cents ($26,440.09)";
(f) Section 16.14 is amended by inserting the following as a second paragraph
in that provision:
- 2 -
<PAGE>
"Further, effective August 1st, 1998, the Landlord shall make available
four (4) unreserved parking spaces in that part of the Parking
Facilities located in Phase IV of the Complex at a monthly fee of
$100.00 per parking space subject to change to reflect the Landlord's
then current fee from time to time during the duration of the Term
including all extensions thereof. The Landlord acknowledges that the
collective fee on account of all parking spaces is reflected in the
Minimum Rent payable by the Tenant with respect to the Second Premises
under Section 1.01(i) of this Lease and represents the annual rate per
square foot of $3.26. This rate has been calculated as follows and is
referred to as the "Base Rate":
$100.00 + $8.00 (PST) X 4 (number of spaces) X 12 (months) DIVIDED BY
1591 (square feet of Second Premises)
Effective from and after the date on which the Landlord's fee for
unreserved parking spaces in that part of the Parking Facilities in
which these four (4) parking spaces are located is increased or
decreased from time to time from the Base Rate, the Landlord will adjust
the annual rate per square foot of Minimum Rent which is payable by the
Tenant for the Second Premises to reflect the corresponding change in
the Base Rate.
For example, if the monthly fee is increased to $110.00 on April 12,
1999, then from and after that date (until the effective date of the
next increase or decrease) the rate of $0.32 will be added to the rates
of Minimum Rent payable by the Tenant with respect to the Second
Premises. The calculation is as follows:
$110.00 + $8.80 (PST) X 4 X 12 (months) DIVIDED BY 1591 = $3.58.
The difference of $0.32 ($3.58 minus the Base Rate) is added to the then
current rate per square foot of Minimum Rent payable at that time
($17.01) and to the rates per square foot set out during the balance of
the Term ($17.51 and $18.01) to obtain the new rates of $17.33, $17.83
and $18.33.
Both the Base Rate and all subsequent adjustments to it are subject to
the Rentable Area of the Second Premises being certified and reference
to 1591 square feet in this Section 16.14 will accordingly be made to
the certified Rentable Area.
The Tenant shall have the right to surrender any of such four (4)
unreserved parking spaces and in such event, the Minimum Rent will
further be adjusted by the Landlord effective as of the date on which
the parking space(s) were surrendered. After surrender, the Tenant will
have the right to license again any of the previously surrendered spaces
subject to availability at the time.
In connection with all of the parking spaces under this second portion
of Section 16.14 and the eight (8) parking spaces referred to in the
first paragraph of this Section 16.14, the Tenant agrees to execute the
Landlord's or the parking operator's standard parking agreement from
time to time upon request. Use of all parking spaces is at the Tenant's
sole risk."
(g) Schedule "B" attached to the Lease is hereby deleted and replaced with
Schedule "B" attached to this Agreement; and
(h) Schedule "C" is amended as follows:
(i) Section 2.02 of Schedule "C" is amended by deleting the words
"the Premises under this Lease" in the third line and
substituting the words "that part of the Premises shown in the
approximate location outlined in yellow on Schedule "B"
attached to this Lease";
(ii) Section 3.02(e) is amended by deleting the last sentence and
substituting the following:
"The Tenant agrees to complete all required work:
(1) with respect to that part of the Premises shown in the
approximate location outlined in yellow on Schedule "B", prior
to July 15, 1998, and
(2) with respect to that part of the Premises shown in the
approximate location outlined in blue on Schedule "B", prior
to August 1, 1998,
subject to Section 16.08 of the Lease.";
(iii) Section 4.02 is amended by designating the first full
paragraph as subparagraph (a) and by inserting the following
words after the words "Fixturing Period" in the first line:
"in relation to that part of the Premises shown in the
approximate location outlined in yellow on Schedule `B'" and
by inserting the following as subparagraph (b):
- 3 -
<PAGE>
"(b) The Fixturing Period in relation to that part of the
Premises shown in the approximate location outlined in blue on
Schedule "B" shall be a maximum period of 31 days commencing
on July 1st, 1998 and ending on July 31st, 1998. The Tenant
shall be permitted to open for business at any time during the
Fixturing Period without any obligation for the payment of
Rent until the Commencement Date, except for charges described
in Section 5.01 hereof."; and
(iv) Section 5.01 is amended by deleting the first three lines and
the words "will continue to be obligated to pay)," in the
fourth line and substituting the following words therefor:
"During each of the Fixturing Periods referred to in Section
4.02 above the Tenant shall not be obligated to pay Minimum
Rent or Additional Rent (except for charges for Utilities
under Section 7.02 and the costs of any additional services in
accordance with Section 7.03 for which the Tenant will
continue to be obligated to pay) with respect to the
corresponding premises to which the Fixturing Period relates,";
4. The Parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect, except
as modified by this Agreement. It is understood and agreed that all terms and
expressions when used in this Agreement, unless a contrary intention is
expressed herein, have the same meaning as they have in the Lease.
5. This Agreement shall enure to the benefit of and be binding upon the
Parties hereto, the successors and assigns of the Landlord and the permitted
successors and permitted assigns of the Tenant.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement
as of the day and year first above written, by affixing their respective
corporate seals under the hands of their proper signing officers duly
authorized in that behalf.
SIGNED, SEALED AND DELIVERED TRUSCAN PROPERTY CORPORATION
in the presence of --------------------------------------
(Landlord)
Per: /s/ Mark Klym
__________________________________
Authorized Signature
Per: /s/ Dawn Michaeloff
__________________________________
Authorized Signature
724 SOLUTIONS INC.
--------------------------------------
(Tenant)
Per: /s/ Chris Erickson
__________________________________
Authorized Signature
Per:__________________________________
Authorized Signature
I/We have authority to bind the corporation.
- 4 -
<PAGE>
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES
TENANT: 724 SOLUTIONS INC.
--------------------------------------
SUITE NO: 700/702
--------------------------------------
DATE: JUNE 29, 1998
--------------------------------------
- 5 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the
Premises in the Building.
<PAGE>
DATED the 29th day of June, 1998
- --------------------------------------------------------------------------------
BETWEEN:
TRUSCAN PROPERTY CORPORATION
(the "Landlord")
- and -
724 SOLUTIONS INC.
(the "Tenant")
- --------------------------------------------------------------------------------
LEASE AMENDING AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
LEASE AMENDING AGREEMENT
THIS AGREEMENT is dated the 23rd day of February, 1999
B E T W E E N :
TRUSCAN PROPERTY CORPORATION
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
724 SOLUTIONS INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 23rd day of April, 1998 (the "Lease"), the Landlord
leased to the Tenant for and during a term, (the "Term"), of three (3) years
commencing on the 1st day of August, 1998 and ending on the 31st day of July
2001, certain premises, (the "Original Premises"), comprising a certified area
of Seven Thousand Seven Hundred and Fifty-Seven (7,757) square feet (720.63
square metres) and designated as Suite No. 700 shown outlined in red on the plan
attached to the Lease as Schedule "B", located in the building municipally
located at 4101 Yonge Street in North York, Ontario (the "Building") in York
Mills Centre, (the "Complex");
B. By a lease amending agreement dated June 29th, 1998 and made between the
Landlord and the Tenant, the Tenant expanded the Premises and leased
additional leasable premises on the 7th floor comprised of a certified 1,430
square feet of Rentable Area and the Lease was amended on the terms and
conditions more particularly set out therein; and
C. The Tenant has exercised its right of first refusal in relation to the
balance of leasable premises to which the right attached under the Lease in
relation to the Leasable Premises shown outlined in orange on Schedule "B"
attached to this Agreement and comprising a certified area of 7,736 square
feet of Rentable Area and the parties have agreed to accordingly amend the
Lease in accordance with the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
sum of Two Dollars ($2.00) now paid by each of the Parties to the other (the
receipt and sufficiency whereof is hereby acknowledged), and other mutual
covenants and agreements, the Parties do hereby agree as follows:
1. The Parties hereby acknowledge, confirm and agree that the foregoing
recitals are true in substance and in fact.
2. On or about March 1st, 1999 (the "Turnover Date") the Tenant will be
given possession of 7,736 square feet of Rentable Area (certified) as more
particularly shown in the approximate location outlined in orange on Schedule
"B" attached to this Agreement (the "Expansion Premises") for the purpose of
commencing the Tenant's fixturing of such premises. During the period
commencing on the Turnover Date and ending on June 30th, 1999, no Minimum
Rent or Additional Rent is payable with respect to such Additional Premises
(except for Utilities under Section 7.02 of the Lease, Additional Rent under
Section 4.03(c)(ii) of the Lease and any Additional Rent which is payable
under the Lease as a result of the Tenant's non-compliance or non-observance
of any provision under the Lease, for which the Tenant will continue to be
obligated to pay) but all other terms and conditions of the Lease shall
apply. The Tenant accepts the Expansion Premises in an "as is" condition and
agrees that all equipment, work, leasehold improvements and fixtures required
to make the Expansion Premises complete and suitable to open for business is
the Tenant's responsibility and is to be undertaken in accordance with plans
and specifications approved by the Landlord in advance in accordance with the
Lease and performed in accordance with the provisions of the Lease. For
greater certainty, the Landlord shall have no obligation to perform any work
in or to the Expansion Premises other than that expressly set out in this
Agreement.
3. The Landlord agrees to absorb and pay on its own account the costs set
out in invoices #98360 and #98361 (as attached to this Agreement as Appendix
1) which relate to the previous construction of that part of the Premises
comprised of Suite No. 702. Further, in connection with the initial
construction of the Expansion Premises, the Landlord will provide
construction management services at no cost to the Tenant.
4. The Lease is amended as of the 1st day of March, 1999, (the "Effective
Date"), as follows:
(a) Section 1.01(e) is deleted and replaced with the following:
"(e) Premises: Part of the 7th floor designated as
Suite 700/702 shown in the approximate
location outlined in red on Schedule "B"
and being collectively comprised of (1)
that portion shown in the approximate
location outlined in yellow on Schedule
- 1 -
<PAGE>
"B" (the "First Premises") and (2) that
portion shown in the approximate
location outlined in blue on Schedule
"B" (the "Second Premises") and that
portion shown in the approximate
location outlined in orange on Schedule
"B" (the "Third Premises"). Although the
First Premises, the Second Premises and
the Third Premises are referred to
separately in this Lease for the purpose
of calculating Minimum Rent payable for
each, the intent is to treat each such
premises collectively as one unless a
contrary intent is expressly set out in
this Lease."
(b) Section 1.01(f) is deleted and replaced with the following:
"(f) Rentable Area of Premises: comprised of a collective certified area
of 16,923 square feet, subject to
Section 3.02, more particularly being
(1) the First Premises comprised of a
certified area of 7,757 square feet and
(2) the Second Premises comprised of a
certified area of 1,430 square feet and
(3) the Third Premises comprised of a
certified area of 7,736 square feet (as
the terms "First Premises", "Second
Premises" and "Third Premises" are
defined in Section 1.01(e) above)."
(c) Section 1.01(g)(2) is amended by deleting the expiry date of July 31,
2001 and substituting the date of July 31, 2003;
(d) Section 1.01(h) is amended by inserting the following to the end of such
provision:
"With respect to that part of the Premises shown in the approximate
location outlined in orange on Schedule "B", the Fixturing Period shall
be a maximum of 122 days after the Landlord has delivered possession of
the Premises to the Tenant (subject to Section 16.08) as more
particularly set out in Section 4.02 of Schedule "C" and the fixturing
period shall end on June 30th, 1999. The possession date is estimated to
be March 1, 1999.";
(e) Section 1.01(i) is deleted and replaced with the following:
"(i) Minimum Rent (subject to Section 4.02):
With respect to the First Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Aug 1/98
to and including
July 31/99 $12.75 $ 98,901.75 $ 8,241.81
Aug 1/99
to and including
July 31/2000 $13.25 $102,780.25 $ 8,565.02
Aug 1/2000
to and including
July 31/2001 $13.75 $106,658.75 $ 8,888.23
Aug 1/2001
to and including
July 31/2002 $15.25 $118,294.25 $ 9,857.85
Aug 1/2002
to and including
July 31/2003 $15.75 $122,172.75 $10,181.06
</TABLE>
With respect to the Second Premises:
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Aug 1/98
to and including
July 31/99 $13.75 $19,662.50 $1,638.54
Aug 1/99
to and including
July 31/2000 $14.25 $20,377.50 $1,698.13
Aug 1/2000
to and including
July 31/2001 $14.75 $21,092.50 $1,757.71
Aug 1/2001
to and including
July 31/2002 $15.25 $21,807.50 $1,817.29
Aug 1/2002
to and including
July 31/2003 $15.75 $22,522.50 $1,876.88
</TABLE>
With respect to the Third Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
July 1/99
to and including
July 31/99 $14.00 $108,304.00 $ 9,025.33
Aug 1/99
to and including
July 31/2000 $14.25 $110,238.00 $ 9,186.50
Aug 1/2000
to and including
July 31/2001 $14.75 $114,106.00 $ 9,508.83
Aug 1/2001
to and including
July 31/2002 $15.25 $117,974.00 $ 9,831.17
Aug 1/2002
to and including
July 31/2003 $15.75 $121,842.00 $10,153.50"
</TABLE>
(f) Section 3.01A is deleted and replaced with the following:
"3.01A EXTENSION OF TERM
Provided:
(a) the Tenant is not then in default under the terms of this Lease; and
(b) the Tenant gives to the Landlord written notice of its intention to
extend the Term of this Lease not less than six (6) months prior to
the expiry of the initial Term,
then the Landlord will grant to the Tenant the right to extend the Term
of this Lease upon the expiry of the initial Term for a period of five
(5) years (the "Extension of Term") upon the same terms and conditions
as set out in this Lease except that the Tenant shall accept the
Premises on an "as is" basis with no Landlord's Work to be performed
and except also that:
- 3 -
<PAGE>
(i) there shall be no further right to extend the Term; and
(ii) the Minimum Rent payable during each consecutive twelve (12) month
period of the Extension of Term shall be mutually agreed upon by
the Landlord and the Tenant within thirty (30) days following the
date on which the Tenant has provided notice of its intention to
extend the Term of this Lease, based on the then current market
rent for similar premises in comparable properties in North Yonge
Street as at the commencement of the Extension of Term.
If the Tenant fails to give the appropriate notice within the time limit
set out herein for extending the Term or if the Landlord and the Tenant
are not able to agree upon the Minimum Rent for the Extension of Term
within the time period set out herein, then this Section 3.01A shall be
null and void and of no further force and effect.";
(g) Section 16.13 shall be deleted and replaced with the following:
"16.13 RIGHT OF FIRST REFUSAL
Provided that:
(a) the Tenant is 724 Solutions Inc. or a Permitted Transferee (as
defined in Section 12.01A of the Lease) and has been in continuous
occupation of and operation in the Premises;
(b) the Tenant is not then in default under this Lease and has not been
in any material, habitual or substantial default under this Lease;
and
(c) the Premises have not at any time been downsized or relocated,
then the Tenant will have, during the Term of the Lease (but excluding
any extensions or renewals thereof unless such extensions or renewals
are pursuant to specific rights of extension or renewals granted under
this Lease, and only if the Tenant has validly exercised such extensions
or renewals in accordance with the conditions attached to such rights),
a non-transferable "once only" right of first refusal (the "Right") to
lease (1) those premises located on the 7th floor of the Building
presently designated as Suite No. 706 and shown in the approximate
location outlined in red on Schedule "B-1" attached to this Lease and
(2) those premises located on the 6th floor of the Building shown in the
approximate location outlined in red on Schedule "B-2" attached to this
Lease, as each of these premises first becomes available for lease by
the Landlord on the terms set out below. Each of the premises referred
to in (1) and (2) herein are referred to in this Section 16.13 as the
"Space".
The Landlord will give written notice to the Tenant advising of the
availability of the Space for lease and the terms and conditions under
which the Landlord would agree to lease the Space to the Tenant. The
rate or rates of minimum rent must be reasonably within then current
market rates, taking into account such factors as the Landlord
reasonably determines to be appropriate such as, without limitation, the
length of term, the value of any existing leasehold improvements, the
location, configuration and other attributes of the Space. The Tenant
will have 5 days after receipt thereof in which to notify the Landlord
in writing that it elects to lease the Space on the same terms and
conditions as contained in the Landlord's notice. If the Tenant declines
to lease the Space on the same terms and conditions set out in the
Landlord's notice or fails to respond within the 5 day period, then the
Tenant's Right shall thereafter be null and void and of no further force
or effect and the Landlord shall have the right to lease the Space on
whatever terms it determines are appropriate without any further right
or obligation to the Tenant.
If within the 5 day period referred to above the Tenant agrees to lease
the Space on the same terms and conditions set out in the Landlord's
notice, then there will be a binding agreement to lease the Space for
the balance of the Term on those same terms and conditions and the
Tenant will execute an amending agreement to the Lease as prepared by
the Landlord forthwith upon request. All of the terms and conditions set
out in the Lease will apply except as set out in the Landlord's notice.
With respect to the 7th floor Space, the Rentable Area of such Space
will be adjusted by the Landlord in order to take into account that the
Tenant will be a full floor tenant and the Landlord will, at the
Tenant's request and at the Tenant's sole expense, reconfigure the
interior of the 7th floor Space by eliminating common corridors and
perform such other work as may be necessary by virtue of the Tenant
becoming a full floor tenant.
The foregoing Right is subject to all rights which exist as at the date
of this agreement in favour of all tenants or other occupants in the
Building, including, without limitation, extension or renewal rights and
prior rights of first refusal.";
(h) Section 16.14 is amended by deleting the second paragraph of that
Section (which second paragraph was inserted into that Section through
paragraph 3(f) of the lease amending agreement dated June 29th, 1998)
and substituting the following therefor:
"Further, effective April 1st, 1999, the Landlord shall make available
four (4) unreserved parking spaces in that part of the Parking
Facilities located in Phase IV of the Complex at the Landlord's current
rates per space in effect from time to time throughout the Term and all
extensions thereof (plus PST and GST). As at April 1st, 1999, the
current monthly rate per space is $100.00 (plus PST and GST). The Tenant
shall have the right to surrender any of such four (4) unreserved
parking spaces and after surrender, shall have the right to license
again any of the previously surrendered spaces subject to availability
from time to time. In connection with all of the parking spaces under
this Section 16.14 (meaning the four (4) unreserved parking spaces and
the eight (8) parking spaces referred to in the foregoing provisions of
this Section 16.14), the Tenant agrees to execute the Landlord's or the
parking operator's standard parking agreement from time to time upon
request.
- 4 -
<PAGE>
Use of all parking spaces is at the Tenant's sole risk. All monthly
rates set out in this Section 16.14 are exclusive of PST and GST, which
taxes the Tenant is required to pay.";
(i) Schedule "B" attached to the Lease is hereby deleted and replaced with
Schedule "B" attached to this Agreement;
(j) Schedules "B-1" and "B-2" attached to this Agreement are deemed attached
to the Lease; and
(k) Schedule "C" is amended as follows:
(1) The following is inserted as a second paragraph to Section 2.02 of
Schedule "C":
"With respect to the Tenant's initial occupation of that part of
the Premises shown in the approximate location outlined in orange
on Schedule "B" attached to this Lease (the Third Premises), the
Landlord shall, on a "once only" basis, supply a maximum of 15
additional AIM units to the Tenant in the Third Premises based upon
the Tenant's demonstrated need. For greater certainty this shall
not apply in connection with Article 11 for which the parties agree
that Section 2.01 of this Schedule "C" shall apply).";
(2) The following shall be inserted as Section 2.03:
"2.03 LANDLORD'S BUILDING WORK
The following work will be performed by the Landlord in accordance
with its choice of design and materials. The Landlord will use
reasonable efforts to complete such work in the calendar year 1999:
(1) upgrade the north elevator lobby of the 7th floor of the
Building; and
(2) perform cosmetic improvements to the common area washrooms of
the 7th floor of the Building.
This work shall not apply in connection with Article 11 for which
the parties agree that Section 2.01 of this Schedule "C" shall
apply.";
(3) Section 3.02(e) is amended by deleting the last sentence and
substituting the following:
"The Tenant agrees to complete all required work:
(1) with respect to that part of the Premises shown in the
approximate location outlined in yellow on Schedule "B", prior to
July 15, 1998, and
(2) with respect to that part of the Premises shown in the
approximate location outlined in blue on Schedule "B", prior to
August 1, 1998, and
(3) with respect to that part of the Premises shown in the
approximate location outlined in orange on Schedule "B", prior to
July 1, 1999,
subject to Section 16.08 of the Lease.";
(4) Section 4.02 is amended by inserting the following as subparagraph
(c) (it being acknowledged that the Lease Amending Agreement dated
June 29th, 1998 included a subparagraph (b) with respect to the
Second Premises):
"(c) The Fixturing Period in relation to that part of the Premises
shown in the approximate location outlined in orange on Schedule
"B" shall commence on the date on which possession of the Third
Premises is turned over to the Tenant by the Landlord (estimated to
be March 1, 1999) and shall end on June 30th, 1999. The Tenant
shall be permitted to open for business in the Third Premises at
any time during the Fixturing Period without any obligation for the
payment of Rent until the Commencement Date, except for charges
described in Section 5.01 hereof."; and
(5) Section 5.01 is deleted and replaced with the following:
"During each of the Fixturing Periods referred to in Section 4.02
above the Tenant shall not be obligated to pay Minimum Rent or
Additional Rent (except for charges for Utilities under Section
7.02 and the costs of any additional services in accordance with
Section 7.03 for which the Tenant will continue to be obligated to
pay) with respect to the corresponding premises to which the
Fixturing Period relates, but the Tenant shall be subject to all
the other terms and conditions of this Lease insofar as they are
applicable, including, without limitation, the obligation to
maintain insurance pursuant to Section 9.02(a) of this Lease and
the provisions relating to the liability of the Tenant for its acts
and omissions and the acts
- 5 -
<PAGE>
and omissions of its servants, employees, agents, contractors,
invitees,concessionaries and licensees and the indemnification of
the Landlord and others under the Lease."
5. The Parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect, except
as modified by this Agreement. It is understood and agreed that all terms and
expressions when used in this Agreement, unless a contrary intention is
expressed herein, have the same meaning as they have in the Lease.
6. This Agreement shall enure to the benefit of and be binding upon the
Parties hereto, the successors and assigns of the Landlord and the permitted
successors and permitted assigns of the Tenant.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement
as of the day and year first above written, by affixing their respective
corporate seals under the hands of their proper signing officers duly
authorized in that behalf.
SIGNED, SEALED AND DELIVERED TRUSCAN PROPERTY CORPORATION
in the presence of -------------------------------------------
(Landlord)
Per: /s/ Mark Klym
______________________________________
Authorized Signature
Per: /s/ Dawn Michaeloff
______________________________________
Authorized Signature
724 SOLUTIONS INC.
-------------------------------------------
(Tenant)
Per: /s/ Chris Erickson
______________________________________
Authorized Signature
Per:______________________________________
Authorized Signature
I/We have authority to bind the corporation.
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES
TENANT: 724 SOLUTIONS INC.
------------------------------
SUITE NO: 700/702
------------------------------
- 6 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the
Premises in the Building.
SCHEDULE "B-1" - FLOOR PLAN OF THE 7TH FLOOR
TENANT: 724 SOLUTIONS INC.
------------------------------
SUITE NO: 700/702
------------------------------
- 7 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the
Space referred to in Section 16.13 (paragraph (1)) of this Lease.
SCHEDULE "B-2" - FLOOR PLAN OF THE 6TH FLOOR
TENANT: 724 SOLUTIONS INC.
------------------------------
SUITE NO: 700/702
------------------------------
- 8 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the
Space referred to in Section 16.13 (paragraph (2)) of this Lease.
APPENDIX 1 - INVOICES
TENANT: 724 SOLUTIONS INC.
------------------------------
SUITE NO: 700/702
------------------------------
- 9 -
<PAGE>
DATED the 23rd day of February, 1999
- ------------------------------------------------------------------------------
BETWEEN:
TRUSCAN PROPERTY CORPORATION
(the "Landlord")
- and -
724 SOLUTIONS INC.
(the "Tenant")
- ------------------------------------------------------------------------------
LEASE AMENDING AGREEMENT
- ------------------------------------------------------------------------------
<PAGE>
LEASE AMENDING AGREEMENT
THIS AGREEMENT is dated the 28th day of June, 1999
B E T W E E N :
TRUSCAN PROPERTY CORPORATION
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
724 SOLUTIONS INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 23rd day of April, 1998 (the "Lease"), the Landlord
leased to the Tenant for and during a term, (the "Term"), of Three (3) years
commencing on the 1st day of August, 1998 and ending on the 31st day of July
2001, certain premises, (the "Original Premises"), comprising a certified
area of Seven Thousand Seven Hundred and Fifty-Seven (7,757) square feet
(720.63 square metres) and designated as Suite No. 700 shown outlined in red
on the plan attached to the Lease as Schedule "B", located in the building
municipally located at 4101 Yonge Street in North York, Ontario (the
"Building") in York Mills Centre, (the "Complex");
B. By a lease amending agreement dated June 29th, 1998 and made between the
Landlord and the Tenant, the Tenant expanded the Premises and leased
additional leasable premises on the 7th floor comprised of a certified 1,430
square feet of Rentable Area and the Lease was amended on the terms and
conditions more particularly set out therein;
C. By a lease amending agreement dated February 23rd, 1999 and made between
the Landlord and the Tenant, the Tenant further expanded the Premises and
leased additional leasable premises on the 7th floor comprised of a certified
7,736 square feet of Rentable Area and the Lease was amended on the terms and
conditions more particularly set out therein; and
D. The Landlord and the Tenant have agreed that the Tenant be provided with
a right of first opportunity to lease premises on the 3rd floor of the
building municipally located at 10 York Mills Road which forms part of the
Complex on the terms and conditions more particularly set out in this
Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum
of Two Dollars ($2.00) now paid by each of the Parties to the other (the
receipt and sufficiency whereof is hereby acknowledged), and other mutual
covenants and agreements, the Parties do hereby agree as follows:
1. The Parties hereby acknowledge, confirm and agree that the foregoing
recitals are true in substance and in fact.
2. Provided that this Agreement is executed by both parties, the Lease is
amended as of the 28th day of June, 1999, (the "Effective Date") as follows:
(1) the following shall be inserted as Section 16.15 in the Lease
(thereby renumbering the current Section 16.15 to 16.16):
"16.15 RIGHT OF FIRST OPPORTUNITY
Provided:
(a) the Tenant is 724 Solutions Inc. and has been in continuous
occupation of and operation in the Premises;
(b) the Tenant is not then in default under this Lease; and
(c) the Premises have not at any time been downsized or relocated,
then if the Landlord receives, at any time during the period commencing
on June 28th, 1999 and ending on August 31st, 1999, a serious bona fide
interest from a third party to lease the whole of the premises shown
outlined in red on Schedule "B-3" attached to this
- 1 -
<PAGE>
Lease which are comprised of approximately 31,311 square feet of
Rentable Area (the "Applicable Space"), then the Landlord will give
written notice to the Tenant of the availability of the Space for lease
and the terms and conditions under which the Landlord would agree to
lease the Applicable Space to the Tenant. The Tenant will have two (2)
business days after receipt of the Landlord's notice in which to notify
the Landlord in writing of its agreement to lease the whole of the
Applicable Space on the same terms and conditions set out in the
Landlord's notice.
If the Tenant declines to lease the Applicable Space on the same terms
and conditions set out in the Landlord's notice or fails to respond
within the two (2) business day period set out above, then the Landlord
shall be entitled to lease the Applicable Space on whatever terms it
determines are appropriate.
If within the two (2) business day period set out above the Tenant
agrees to lease the Applicable Space on the same terms and conditions
set out in the Landlord's notice, then there will be a binding agreement
to lease the Applicable Space for the balance of the Term on those same
terms and conditions and the Tenant will execute an amending agreement
to this Lease as prepared by the Landlord forthwith upon request. The
Tenant shall take the Applicable Space in its current "as is" condition.
All of the terms and conditions set out in this Lease will apply except
as set out in the Landlord's notice.
For greater certainty, if the Landlord has not received a serious bona
fide interest from a third party to lease the Applicable Space by 11:59
pm on August 31st, 1999, then the within right of first opportunity
shall be null and void and of no further force or effect."; and
(2) Schedule "B-3" attached to this Agreement shall be deemed appended
to and attached to the Lease.
3. The Parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect,
except as modified by this Agreement. It is understood and agreed that
all terms and expressions when used in this Agreement, unless a contrary
intention is expressed herein, have the same meaning as they have in the
Lease.
4. This Agreement shall enure to the benefit of and be binding upon the
Parties hereto, the successors and assigns of the Landlord and the
permitted successors and permitted assigns of the Tenant.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement
as of the day and year first above written, by affixing their respective
corporate seals under the hands of their proper signing officers duly
authorized in that behalf.
SIGNED, SEALED AND DELIVERED TRUSCAN PROPERTY CORPORATION
in the presence of --------------------------------------
(Landlord)
Per: /s/ David Gerofsky
__________________________________
Authorized Signature
Per: /s/ Dawn Michaeloff
__________________________________
Authorized Signature
724 SOLUTIONS INC.
--------------------------------------
(Tenant)
Per: /s/ Karen Basian
__________________________________
Authorized Signature
Per:__________________________________
Authorized Signature
I/We have authority to bind the corporation.
- 2 -
<PAGE>
- 3 -
<PAGE>
SCHEDULE "B-3" - FLOOR PLAN OF THE 3RD FLOOR OF 10 YORK MILLS ROAD
TENANT: 724 SOLUTIONS INC.
--------------------------------------
SUITE NO: 700/702
--------------------------------------
The sole purpose of this plan is to show the approximate location of the
Applicable Space referred to in Section 16.15 of this Lease.
- 4 -
<PAGE>
DATED the 28th day of June, 1999
- --------------------------------------------------------------------------------
BETWEEN:
TRUSCAN PROPERTY CORPORATION
(the "Landlord")
- and -
724 SOLUTIONS INC.
(the "Tenant")
- --------------------------------------------------------------------------------
LEASE AMENDING AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
LEASE AMENDING AGREEMENT
THIS AGREEMENT is dated the 25th day of October, 1999
B E T W E E N :
TRUSCAN PROPERTY CORPORATION
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
724 SOLUTIONS INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 23rd day of April, 1998 (the "Lease"), the Landlord
leased to the Tenant for and during a term, (the "Term"), of three (3) years
commencing on the 1st day of August, 1998 and ending on the 31st day of July
2001, certain premises, (the "Premises"), comprising a certified area of
Seven Thousand Seven Hundred and Fifty-Seven (7,757) square feet (720.63
square metres) and designated as Suite No. 700 shown outlined in red on the
plan attached to the Lease as Schedule "B", located in the building
municipally located at 4101 Yonge Street in Toronto (formerly North York),
Ontario (the "Yonge Street Building") in York Mills Centre, (the "Complex");
B. By an agreement dated June 29th, 1998 (the "First Lease Amending
Agreement"), made between the Landlord and the Tenant, the Tenant expanded
the Premises and leased additional leasable premises on the 7th floor
comprised of a certified 1,430 square feet of Rentable Area and the Lease was
amended on the terms and conditions more particularly set out therein;
C. By an agreement dated February 23rd, 1999 (the "Second Lease Amending
Agreement"), made between the Landlord and the Tenant, the Tenant further
expanded the Premises and leased additional leasable premises on the 7th
floor comprised of a certified area of 7,736 square feet of Rentable Area,
the Term was extended to expire on the 31st day of July, 2003, and the Lease
was amended on the terms and conditions more particularly set out therein;
D. By an agreement dated June 28th, 1999 (the "Third Lease Amending
Agreement"), made between the Landlord and the Tenant, the Tenant has been
provided with a right of first opportunity to lease premises on the 3rd floor
of the building municipally located at 10 York Mills Road, Toronto, Ontario
(the "10 York Mills Building") which forms part of the Complex upon the term
and conditions more particularly set out therein, (the Lease, as amended by
the First Lease Amending Agreement, the Second Lease Amending Agreement and
the Third Lease Amending Agreement, being herein referred to as the "Lease");
and
E. The Tenant wishes to expand the Premises by leasing those premises
located on: (i) the 3rd floor of 10 York Mills Building and shown in the
approximate location outlined in green on Schedule "B-1" attached to this
Agreement and comprising approximately 31,311 square feet of Rentable Area;
and (ii) the 3rd floor of the building municipally located at 20 York Mills
Road in Toronto, Ontario (the "20 York Mills Building") and shown in the
approximate location outlined in yellow on Schedule "B-2" attached to this
Agreement and comprising approximately 26,780 square feet of Rentable Area
and the parties have agreed to accordingly amend the Lease in accordance with
the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum
of Two Dollars ($2.00) now paid by each of the parties to the other (the
receipt and sufficiency whereof is hereby acknowledged), and other mutual
covenants and agreements, the parties do hereby agree as follows:
1. The parties hereby acknowledge, confirm and agree that the foregoing
recitals are true in substance and in fact.
2. On the date this Agreement has been executed by both the Tenant and the
Landlord (the "Turnover Date") the Tenant will be given possession of: (i)
approximately 31,311 square feet of Rentable Area in 10 York Mills Building
as more particularly shown in the approximate location outlined in green on
Schedule "B-1" attached to this Agreement; and (ii) approximately 26,780
square feet of Rentable Area in 20 York Mills Building as more particularly
shown in the approximate location outlined in yellow on Schedule "B-2"
attached to this Agreement (collectively the "Additional Premises") for the
purpose of commencing the Tenant's fixturing of such premises. During the
period commencing on the Turnover Date and ending on the day immediately
preceding the First, Second or Third Rent Commencement Date of the Additional
Premises (as those terms are defined in Section 1.01(i) of the Lease), as the
case may be, no Minimum Rent or Additional Rent is payable with respect to
such Additional Premises (except for Utilities under Section 7.02 of the
Lease, Additional Rent under Section 4.03(c)(ii) of the Lease and any
Additional Rent which is payable under the Lease as a result of the Tenant's
non-compliance or non-observance of any provision under the Lease, for
- 1 -
<PAGE>
which the Tenant will continue to be obligated to pay) but all other terms
and conditions of the Lease shall apply. The Tenant accepts the Additional
Premises in an "as is" condition and agrees that all equipment, work,
leasehold improvements and fixtures required to make the Additional Premises
complete and suitable to open for business is the Tenant's responsibility and
is to be undertaken in accordance with plans and specifications approved by
the Landlord in advance in accordance with the Lease and performed in
accordance with the provisions of the Lease. For greater certainty, the
Landlord shall have no obligation to perform any work in or to the Additional
Premises other than that expressly set out in this Agreement.
3. The Lease is amended as of the Turnover Date, as follows:
(a) Section 1.01(e) is deleted and replaced with the following:
"(e) Premises: (i) Part of the 7th floor of the
building municipally known as
4101 Yonge Street, Toronto,
Ontario and shown on Schedule
"B" and being collectively
comprised of (A) that portion
shown in the approximate
location outlined in red on
Schedule "B" (the "First
Premises"); (B) that portion
shown in the approximate
location outlined in blue on
Schedule "B" (the "Second
Premises"); and (C) that
portion shown in the
approximate location outlined
in orange on Schedule "B" (the
"Third Premises");
(ii) the entire 3rd floor of the
building municipally known as
10 York Mills Road, Toronto,
Ontario and shown in the
approximate location outlined
in green on Schedule "B-1"
(the "Fourth Premises"); and
(iii) the entire 3rd floor of the
building municipally known as
20 York Mills Road, Toronto,
Ontario and shown in the
approximate location outlined
in yellow on Schedule "B-2"
(the "Fifth Premises").
The Fourth Premises and the Fifth
Premises are being herein
collectively referred to as the
Additional Premises unless a
contrary intent is expressly set out
in this Lease.
Although the First Premises, the
Second Premises, the Third Premises
and the Additional Premises are
referred to separately in this Lease
for the purpose of calculating
Minimum Rent payable for each, the
intent is to treat each such
premises collectively as one unless
a contrary intent is expressly set
out in this Lease.".
(b) Section 1.01(f) is deleted and replaced with the following:
"(f) Rentable Area of the Premises: comprised of a collective area of
approximately 75,014 square feet,
subject to Section 3.02, more
particularly being (i) the First
Premises comprised of a certified
area of 7,757 square feet; (ii) the
Second Premises comprised of a
certified area of 1,430 square feet;
(iii) the Third Premises comprised
of a certified area of 7,736 square
feet; (iv) the Fourth Premises
comprised of an area of
approximately 31,311 square feet;
and (v) the Fifth Premises comprised
of an area of approximately 26,780
square feet (as the terms "First
Premises", "Second Premises", "Third
Premises", "Fourth Premises" and
"Fifth Premises" are defined in
Section 1.01(e) above).".
(c) Section 1.01(g)(2) is amended by deleting the expiry date of July 31st,
2003 and substituting the date of May 31st, 2005.
(d) Section 1.01(h) is amended by inserting the following to the end of such
provision:
"With respect to the Additional Premises (as that term is defined in
Section 1.01(e) above), the Fixturing Period shall commence on the date
on which the Landlord has delivered possession of the Additional
Premises to the Tenant as more particularly set out in Section 4.02 of
Schedule "C" and shall end on the day immediately preceding the First,
Second or Third Rent Commencement Date of the Additional Premises (as
those terms are defined in Section 1.01(i) below), as the case may be."
(e) Section 1.01(i) is deleted and replaced with the following:
"(i) Minimum Rent (subject to Section 4.02):
- 2 -
<PAGE>
With respect to the First Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Apr 1/2000
to and including
July 31/2000 $13.25 $102,780.25 $ 8,565.02
Aug 1/2000
to and including
July 31/2001 $13.75 $106,658.75 $ 8,888.23
Aug 1/2001
to and including
July 31/2002 $15.25 $118,294.25 $ 9,857.85
Aug 1/2002
to and including
July 31/2003 $15.75 $122,172.75 $10,181.06
Aug 1/2003
to and including
May 31/2005 $18.00 $139,626.00 $11,635.50
</TABLE>
With respect to the Second Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Apr 1/2000
to and including
July 31/2000 $14.25 $20,377.50 $1,698.13
Aug 1/2000
to and including
July 31/2001 $14.75 $21,092.50 $1,757.71
Aug 1/2001
to and including
July 31/2002 $15.25 $21,807.50 $1,817.29
Aug 1/2002
to and including
July 31/2003 $15.75 $22,522.50 $1,876.88
Aug 1/2003
to and including
May 31/2005 $18.00 $25,740.00 $2,145.00
</TABLE>
- 3 -
<PAGE>
With respect to the Third Premises:
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Apr 1/2000
to and including
July 31/2000 $14.25 $110,238.00 $ 9,186.50
Aug 1/2000
to and including
July 31/2001 $14.75 $114,106.00 $ 9,508.83
Aug 1/2001
to and including
July 31/2002 $15.25 $117,974.00 $ 9,831.17
Aug 1/2002
to and including
July 31/2003 $15.75 $121,842.00 $10,153.50
Aug 1/2003
to and including
May 31/2005 $18.00 $139,248.00 $11,604.00
</TABLE>
With respect to the Additional Premises:
(A) based on first 18,091 square feet of Rentable Area leased,
commencing April 1st, 2000 (the "First Rent Commencement Date
of the Additional Premises")
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Apr 1/2000
to and including
May 31/2000 $17.00 $307,547.00 $25,628.92
</TABLE>
(B) based on next 20,000 square feet of Rentable Area leased,
being a collective Rentable Area of 38,091 square feet,
commencing June 1st, 2000 (the "Second Rent Commencement Date
of the Additional Premises")
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Jun 1/2000
to and including
Jun 30, 2000 $17.00 $647,547.00 $53,962.25
</TABLE>
(C) based on remaining 20,000 square feet of Rentable Area leased,
being a collective Rentable Area of 58,091 square feet,
commencing July 1st, 2000 (the "Third Rent Commencement Date
of the Additional Premises")
<TABLE>
<CAPTION>
Annual Rate Per Square Foot
Years Of Rentable Area Per Year Per Month
----- --------------------------- -------- ---------
<S> <C> <C> <C>
Jul 1/2000
to and including
May 31/2005 $17.00 $987,547.00 $82,295.58
</TABLE>
- 4 -
<PAGE>
(6) The definition of "Building" contained in Section 1.02 is deleted and
replaced with the following:
"Building" collectively means those portions of the Office Component in
which the Premises are located, being comprised of the buildings
municipally known as: (i) 4101 Yonge Street, Toronto, Ontario; (ii) 10
York Mills Road, Toronto, Ontario; and (iii) 20 York Mills Road,
Toronto, Ontario, as they may be altered, expanded or reduced from time
to time, together with those portions of the Common Elements which
exclusively serve such buildings. The Building does not include the
Parking Facilities.".
(7) Section 8.04 of the Lease is amended by inserting the following at the
end thereof:
"It is agreed that the Tenant shall have the non-exclusive right, at the
Tenant's own expense, to corporate identification signage on: (i) the
exterior building podium sign located in the building municipally known
as 10 York Mills Road, Toronto, Ontario; and (ii) the exterior building
podium sign located in the building municipally known as 20 York Mills
Road, Toronto, Ontario.".
(h) Section 12.01(c)(iv) is amended by adding at the end thereof the following:
"However, so long as the Tenant is 724 Solutions Inc., the criterion
referred to in this Section 12.01(c)(iv) shall not be applicable in the
case of a Transfer by the Tenant to an existing tenant of the Complex
provided that at the time the request is made there is no vacant space
available for lease in the Office Component of the Complex of a size
substantially comparable in size (or twenty percent (20%) larger or
twenty percent (20%) smaller in size) to the size of that portion of the
Premises which the Tenant is proposing to Transfer and the Landlord does
not reasonably expect any vacancy of that nature to arise in the Office
Component within the next six (6) months.".
(i) Section 16.13 (being the Right of First Refusal referred to in Section
4(g) of the Lease Amending Agreement dated February 23, 1999) is hereby
deleted.
(j) Section 16.14 of the Lease is amended so that effective April 1st, 2000,
the Landlord shall make available to the Tenant up to a total of
seventy-five (75) unreserved parking stalls in that part of the Parking
Facilities to be designated by the Landlord, acting reasonably, at the
then current fee from time to time during the duration of the Term. It
is agreed that the Tenant will advise the Landlord in writing, on or
before April 1st, 2000, of the exact number of parking stalls it wishes
to license, and to the extent that the Tenant elects to license less
than seventy-five (75) parking stalls, the Landlord shall be entitled to
license such parking stalls to other tenants in the Complex on a first
come, first served basis. The Tenant agrees to execute the Landlord's or
the parking operator's standard parking agreement upon request.
(k) Section 16.15 of the Lease is deleted and replaced with the following:
"16.15 RIGHT OF FIRST OPPORTUNITY
Provided:
(i) the Tenant is 724 Solutions Inc. and has been in continuous
occupation of and operation in the Premises;
(ii) the Tenant is not then in default under this Lease; and
(iii) the Premises have not at any time been downsized or relocated,
then if the Landlord receives a bona fide interest from a third party to
lease any office space in: (1) the building municipally located at 4101
Yonge Street; (2) the building municipally located at 10 York Mills
Road; or (3) the building municipally located at 20 York Mills Road
(each of which is called the "Applicable Space"), then the Landlord will
give written notice to the Tenant of the availability of such Applicable
Space for lease and the terms and conditions under which the Landlord
would agree to lease such Applicable Space to the Tenant, with the rate
or rates of minimum rent to be reasonably within the then current market
rates for such Applicable Space and with the term to be co-terminus with
the Term including any extensions or renewals. The Tenant will have two
(2) business days after receipt of the Landlord's notice in which to
notify the Landlord in writing of its agreement to lease the whole of
such Applicable Space on the same terms and conditions set out in the
Landlord's notice.
If the Tenant declines to lease such Applicable Space on the same terms
and conditions set out in the Landlord's notice or fails to respond
within the two (2) business day period set out above, then the Landlord
shall be entitled to lease such Applicable Space on whatever terms it
determines are appropriate.
If within the two (2) business day period set out above, the Tenant
agrees to lease such Applicable Space on the same terms and conditions
set out in the Landlord's notice, then there will be a binding
- 5 -
<PAGE>
agreement to lease such Applicable Space for the balance of the Term on those
same terms and conditions and the Tenant will execute an amending agreement
to this Lease as prepared by the Landlord forthwith upon request. The Tenant
shall take all such Applicable Space in its current "as is" condition. All of
the terms and conditions set out in this Lease will apply except as set out
in the Landlord's notice.".
(l) The following is inserted as Section 16.16 in the Lease and the
current Section 16.16 (Acceptance of Lease) is renumbered as Section
16.18:
"16.16 RESTRICTIVE COVENANT
Provided the Tenant is 724 Solutions Inc., is itself in occupation of
and carrying on business in the Premises, and not in default under this
Lease, the Landlord agrees not to lease any Leasable Premises located
within any Building in the Complex occupied by the Tenant to the
following companies without the prior written consent of the Tenant:
(i) Security First Technologies (S1)
(ii) w-Trade Technologies
(iii) Aether Technologies
(iv) Brokat Infosystems
(v) Saraide.com
The Landlord is not obligated to enforce the aforementioned covenant
against any Person if by so doing it shall be in breach of any laws,
rules or regulations from time to time in force, and no provision of
this Lease is intended to apply or to be enforceable to the extent that
it would give rise to any offence under the Competition Act (Canada),
or any statute that may be substituted therefor, as from time to time
amended. Provided further that as the aforementioned covenant has been
granted only at the Tenant's request, then if the Tenant instructs the
Landlord to enforce such covenant, the Tenant shall indemnify and hold
the Landlord harmless from any loss, injury or damage suffered by the
Landlord as a result of breaching any such legislation as aforesaid,
including all expenses incurred in connection with any claims, actions
or proceedings brought with respect thereto, whether of a criminal or
civil nature, and will reimburse the Landlord for any and all costs or
expenses incurred in connection with any enforcement of this covenant
by the Landlord, including legal fees on a solicitor and his client
basis.".
(m) The following is inserted as Section 16.17 in the Lease:
"16.17 ROOFTOP SPACE
The Landlord shall cooperate with the Tenant in an effort to
accommodate the Tenant's communication and HVAC requirements on the
rooftop of the Complex, subject to all required approvals, base
building and structural requirements and non-interference with other
tenants in the Complex. All costs shall be borne by the Tenant
including the restoration of the rooftop at the expiry or earlier
termination of this Lease.".
(n) Schedule "B-1" and Schedule "B-2" attached to this Agreement are deemed
appended to the Lease.
(o) Schedule "B-3" is hereby deleted.
(p) Schedule "C" is amended as follows:
(i) The following is inserted as a third paragraph to Section 2.02 of
Schedule "C":
"With respect to the Tenant's initial occupation of the
Additional Premises (as that term is defined in Section
1.01(e) of the Lease), the Landlord shall, on a "once only"
basis and at its expense, order and install carpet of up to
15,000 square feet of Rentable Area in the Additional Premises
(the "Carpeted Area"). It is agreed that the Tenant shall have
the right to select the location of the Carpeted Area. The
carpet will be comparable to that contained in the First,
Second and Third Premises (as those terms are defined in
Section 1.01(e) of the Lease) and installation thereof will be
subject to availability. The Landlord shall also supply to the
Carpeted Area, based on base building standard, electrical
service, HVAC and lighting, all of which as currently exists.
The Landlord will also provide on a "one-time only" basis and
so as not to delay the completion of the Tenant's Work:
(1) new base building ceiling tiles bundled and delivered to
the floor for installation by the Tenant's contractor at
the Tenant's cost, in a quantity sufficient to fixture
the t-bar ceiling of the 3rd floor in 20 York Mills
Building (estimated at approximately 25,000 square feet
of 2 ft. x 4 ft. tiles; and
(2) up to 200 base building concrete floor tiles based on
the Tenant's demonstrated needs.
- 6 -
<PAGE>
The Landlord will also provide the Tenant with a "one-time
only" payment to a maximum of $60,000.00 plus G.S.T. to be
used by the Tenant exclusively for the purpose of tuning up
the raised floor tile and support system currently installed
and servicing all of the Additional Premises, such work to be
completed by a qualified raised flooring contractor acceptable
to the Landlord, and such payment to be made by the Landlord
to the Tenant upon presentation by the Tenant to the Landlord
of copies of receipted and paid invoices evidencing the
completion of such work. The Landlord shall be permitted to
perform its work in the Additional Premises during the
Tenant's Fixturing Period.
The Landlord shall pay for one space plan and one revision, to
a maximum value of $0.07 per square foot of the Rentable Area
of the Additional Premises.
The Landlord will provide, at its expense, a hook-up to an
emergency generator to provide back-up power to a maximum of 60
KVA to the Additional Premises only. The Tenant agrees to accept
the generator in an "as is" condition and the Landlord shall have
no liability for failure of power supply.".
(ii) Section 3.02(e) is amended by adding the following at the end
thereof:
"With respect to the Additional Premises, the Tenant accepts the
Additional Premises in an "as is" condition and will complete a
full renovation of the Additional Premises at its expense in
accordance with plans and specifications and workers approved by
the Landlord in advance and otherwise in accordance with the terms
of the Lease. The Tenant agrees to substantially complete all
required work prior to November 1, 2000, subject to Section 16.08
of the Lease. The Tenant shall be responsible at its own expense
for any modifications or renovations within the First, Second or
Third Premises (as defined in Section 1.01(e) of the Lease),
subject to the prior approval of the Landlord and the general
procedures outlined in this Schedule "C". The Tenant shall not be
required to seek the Landlord's approval, but shall provide the
Landlord with reasonable prior notice, for renovation projects
costing less than $25,000.00. Notwithstanding the foregoing, the
Landlord's prior approval shall be required for any mechanical or
electrical work regardless of cost.".
(iii) Section 4.02 is amended by inserting the following as subparagraph
(d) (it being acknowledged that the Lease Amending Agreement dated
February 23, 1999 included a subparagraph (c) with respect to the
Third Premises):
"(c) The Fixturing Period in relation to the Additional
Premises shall commence on the date on which possession of the
Additional Premises is turned over to the Tenant by the
Landlord and shall end on the day immediately preceding the
First, Second or Third Rent Commencement Date of the
Additional Premises (as those terms are defined in Section
1.01(i) of the Lease). The Tenant shall be permitted to open
for business in the Additional Premises at any time during the
Fixturing Period without any obligation for the payment of
Rent (except for Utilities under Section 7.02 of the Lease,
Additional Rent under Section 4.03(c)(ii) of the Lease and any
Additional Rent which is payable under the Lease as a result
of the Tenant's non-compliance or non-observance of any
provision under the Lease, for which the Tenant will continue
to be obligated to pay.".
4. The parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect, except as
modified by this Agreement. It is understood and agreed that all terms and
expressions when used in this Agreement, unless a contrary intention is
expressed herein, have the same meaning as they have in the Lease.
- 7 -
<PAGE>
5. This Agreement shall enure to the benefit of and be binding upon the
parties hereto, the successors and assigns of the Landlord and the permitted
successors and permitted assigns of the Tenant.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement
as of the day and year first above written, by affixing their respective
corporate seals under the hands of their proper signing officers duly
authorized in that behalf.
TRUSCAN PROPERTY CORPORATION
(Landlord)
Per: /s/ David Gerofsky
________________________________________
Authorized Signature
Per: /s/ Dawn Michaeloff
________________________________________
Authorized Signature
I/We have authority to bind the corporation.
724 SOLUTIONS INC.
(Tenant)
Per: /s/ Karen Basian
________________________________________
Authorized Signature
Per: /s/ Kerry McLellan
________________________________________
Authorized Signature
I/We have authority to bind the corporation.
- 8 -
<PAGE>
SCHEDULE "B-1" - FLOOR PLAN OF THE ADDITIONAL PREMISES
TENANT: 724 SOLUTIONS INC.
------------------------------------------
SUITE NO: ALL OF THE 3RD FLOOR OF 10 YORK MILLS ROAD
------------------------------------------
- 9 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the Fourth
Premises in 10 York Mills Building.
- 10 -
<PAGE>
SCHEDULE "B-2" - FLOOR PLAN OF THE ADDITIONAL PREMISES
TENANT: 724 SOLUTIONS INC.
------------------------------------------
SUITE NO: ALL OF THE 3RD FLOOR OF 10 YORK MILLS ROAD
------------------------------------------
- 11 -
<PAGE>
The sole purpose of this plan is to show the approximate location of the Fifth
Premises in 20 York Mills Building.
- 12 -
<PAGE>
DATED the 25TH day of OCTOBER, 1999
- ------------------------------------------------------------------------------
BETWEEN:
TRUSCAN PROPERTY CORPORATION
(the "Landlord")
- and -
724 SOLUTIONS INC.
(the "Tenant")
- ------------------------------------------------------------------------------
LEASE AMENDING AGREEMENT
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.14
Agreement between 724 Solutions Inc. and Sonoma Mountain Ventures
Sonoma currently provides, upon the Registrant's request, strategic planning
advice in connection with the Registrant's customer services. The consulting
arrangement is for a two year term ending in August 2001. This agreement is
terminable at will by the Company. The Registrant has orally agreed that
Sonoma will receive a monthly fee of approximately $34,000. The Registrant
has also issued to Sonoma options to purchase an aggregate of 48,000 of the
Registrant's common shares at $1.71 per share. These options have vested at
the rate of 2,000 shares per month since September 1999, and terminate in
August 2009.
The Registrant has not yet entered into a written agreement with Sonoma,
expects to do so before the end of the first quarter of 2000.
<PAGE>
EXHIBIT 11.1
LIST OF SUBSIDIARIES
724 Solutions Corp.
724 Solutions International SRL
724 Solutions (UK) Ltd.
<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 26, 2000
